4:13pm: Biden and McCarthy talk deficit
The Dow closed Tuesday down 336 points, 1%, at 33,012, the Nasdaq Composite lost 22 points, 0.2%, to 12,343 and the S&P 500 declined 26 points, 0.6%, to 4,110. The small-cap Russell 2000 index fell 23 points, 1.3%, to 1,739.
The benchmarks swooned in the waning hours of the trading session, even dragging the Nasdaq into negative territory, which has been above water most of the day.
Investors are still worried about the looming debt ceiling crisis. President Biden and House Majority Leader Kevin McCarthy met Tuesday to discuss avoiding a default, which could occur as early as June 1.
That would be a disaster, according to Treasury Secretary Janet Yellen.
“A default would crack open the foundations upon which our financial system is built,” Yellen said Tuesday. “It is very conceivable that we’d see a number of financial markets break – with worldwide panic triggering margin calls, runs and fire sales.”
12.05pm: Stocks struggle as weak retail sales and debt ceiling worries also weigh
US stocks were mixed in noon trading following a lackluster outlook from Home Depot, weaker-than-expected April retail sales, and continuing concerns over the debt ceiling deadline.
At midday, the Dow lost 204 points to 33,144, while the S&P 500 eased 10 points at 4,126 and the tech-heavy Nasdaq gained 29 points to 12,394.
“We worry the stock market is not adequately pricing in the risk of a failure of the Democrats and Republicans to reach an agreement to raise the debt ceiling, which would be catastrophic for the US economy,” Loop Capital’s Anthony Chukumba wrote in a note.
Notable movers included shares of Capital One Financial Corp, which rose as much as 6% after Warren Buffett’s Berkshire Hathaway Inc disclosed that it now owns 9.92 million shares, or 2.6%, of the Virginia-based lender.
9:40am: Stocks lower on debt ceiling jitters
US stocks moved lower at the open ahead of a key meeting of congressional leaders on the country’s debt ceiling.
Just after the market opened, the Dow Jones had shed 129 points or 0.4% at 33,220 points, the S&P 500 was down 10 points or 0.2% at 4,127 points, and the Nasdaq had slipped 16 points or 0.1% at 12,348 points.
Meanwhile, US retail sales rose 0.4% in April after falling by 0.6% in March, below the consensus expectation of a 0.8% increase.
Sales excluding autos rose 0.4%, in line with expectations, while retail control sales were up 0.7%, above the consensus 0.3%.
“The April rebound in total retail sales follows two straight months of decline, but still leaves spending comfortably below its recent January peak,” noted Pantheon Macroeconomics senior US economist Kieran Clancy.
“The upshot here is that even flat sales in May and June seem a tall order; we are braced for outright declines, helping to tip the economy into a spring/summer recession.”
7:50am: Debt ceiling talks in focus
US stocks are expected to open lower on Tuesday as all eyes turn to a meeting between President Joe Biden and congressional leaders on the US debt ceiling.
In pre-market trading, futures for the Dow Jones Industrial Average (DJIA) were 0.3% lower, while those for the S&P 500 shed 0.2%, and contracts for the Nasdaq 100 fell 0.1%.
Wall Street stocks closed higher on Monday, with the DJIA breaking five-consecutive sessions of losses, ending 0.1% higher, while the S&P 500 added 0.3%, and the tech-heavy Nasdaq Composite led the charge with a 0.7% gain.
Today, however, investors are anxiously awaiting progress on a deal to raise the debt ceiling before June 1, which is the earliest date the Treasury Department has said the US could default on its debt obligations. Treasury Secretary Janet Yellen said last week that a lack of a deal could spur an “economic catastrophe.”
President Biden gave a more optimistic view of the ongoing negotiations over the weekend, while House Speaker Kevin McCarthy said significant obstacles still remain. Biden has so far maintained that raising the debt ceiling is non-negotiable. McCarthy, however, has pushed for talks to broker a deal to raise the debt ceiling be tied to spending cuts.
Ipek Ozkardeskaya, senior analyst at Swissquote Bank thinks an agreement on the US debt ceiling is unlikely before the last minute but pointed out that, for investors, "a default means US government not servicing the debt."
She said: "Investors don’t care much whether the US government workers will get paid or not. They just care about whether the US will be able to service its debt. So here, there is a nuance. And even in an extreme case, like in 2013 when we saw the US government shut for weeks, it wasn’t considered a default because 1. US didn’t default on its debt payments, so for investors, frankly speaking, there was no default whatsoever ... even politicians didn’t call the 2013 government shutdown a default, they said it was just a ‘lapse in appropriations’. So even in case of a government shutdown, the US can avoid a proper default."
In economic data, April US retail sales are due at 8.30am ET on Tuesday, with economists anticipating an increase of 0.8%.
An array of Federal Reserve speakers are also lined up today, with Fed vice chair for Supervision Michael Barr to go before the House Financial Services Committee at 10am, while Fed presidents Raphael Bostic of Atlanta, John Williams of New York and Austan Goolsbee of Chicago will appear at other events.
On the corporate front, Home Depot shares fell after the home improvement retailer reported disappointing quarterly revenue and cut its full-year guidance.