Wall Street slips as debt worries linger

NEW YORK (AP) Stocks fell Tuesday as the US government crept closer to the brink of a potentially catastrophic default on its debt.

The S&P 500 fell 1.1% after House Speaker Kevin McCarthy said: We are not yet on a deal to prevent the US government is out of money. That followed a meeting late Monday that he and President Joe Biden called productive, but ultimately ended without agreement.

The Dow Jones Industrial Average fell 231 points, or 0.7%, while the Nasdaq composite lost 1.3%.

So far, the stock market has remained largely resilient even as Washington approaches a June 1 deadline. That’s when the US government can no longer pay its bills unless Congress allows it to borrow more. Economists and investors are widely convinced that a bankruptcy would send a shock wave through the global economy and financial markets.

The assumption on Wall Street was that Congress would reach a deal at the 11th hour, as has been done several times before, because the alternative simply seems too bad for everyone to allow.

But a worry on Wall Street is that Washington may not feel an urgency to act until financial markets shake hard enough to inflame politicians in both parties.

There’s a theory that neither of them looks like a hero until there’s that fear of cascading prices, says Keith Buchanan, senior portfolio manager at Globalt Investments. One party or both can look like white knights.

Parts of Wall Street have shown more concern, particularly in the bond market, where some Treasury bills should be repaid around the date of a possible default. Prices for those bonds have fallen, in part due to debt ceiling concerns, which in turn have pushed up their yields.

But the stock market has not shown much concern. Buchanan said this may be because it’s hard to know how prices in different markets would react to something that has never happened before and was once unthinkable.

He said he has not made any moves towards investments that he oversees for fear of bankruptcy, at least not yet.

I think everyone is taking it moment by moment, he said. Every minute that passes increases the urgency.

Concerns about the debt ceiling come on top of concerns that the slowing economy is heading for recession, even without bankruptcy. A preliminary report released Tuesday morning suggested the economy remains divided, with growth for travel and other service companies picking up while manufacturing remains under pressure.

The economic expansion in the US continued to gain momentum in May, but an increasing dichotomy is visible,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.

On Wall Street, AutoZone fell 6% after weaker sales growth for the last quarter than analysts had expected. It pointed to a slower than expected March.

Electric vehicle maker Lordstown Motors fell 5.3% to 28 cents after it announced a reverse stock split to boost its share price. Investors get one new share for every 15 they currently own. The stock has remained below $1 since mid-March.

On the winning side of Wall Street was Lowes, who rose 1.7% after reporting stronger earnings and sales for the latest quarter than analysts had expected. But it also lowered its financial forecasts for the year, in part due to disappointing sales to DIY customers.

Retailers are among the last companies to report their results for the first three months of the year and most companies have beaten expectations. Retailers, in particular, have received a lot of attention as resilient US household spending has been one of the key positives in keeping the economy out of recession.

Industry and other parts of the economy are struggling under the weight of much higher interest rates designed to control inflation.

High interest rates also stressed the US banking system. Since March, three high-profile bank failures have rocked the system and Wall Street is on the hunt for the next bank that could face a debilitating drop in customer confidence.

Some of the toughest checks have been on PacWest Bancorp, but it rallied for a second day after announcing the sale of a $2.6 billion portfolio of real estate construction loans. It rose another 7.9% after a 19.5% jump on Monday.

Other banks also gained strength, including a 4.6% jump for Zions Bancorp.

All told, the S&P 500 lost 47.05 points to 4,145.58. The Dow Jones fell 231.07 to 33,055.51 and the Nasdaq lost 160.53 to 12,560.25.

In the bond market, the yield on 10-year Treasury bills fell to 3.70% from 3.72% late Monday. It helps set rates for mortgages and other important loans.

The two-year interest rate, which moves more in line with the Fed’s expectations, rose from 4.32% to 4.34%.

Most foreign stock markets fell, including a 1.3% drop for Paris and a 1.5% drop for Shanghai.

AP Business Writers Matt Ott and Joe McDonald contributed.