Wall St ends sharply lower as deadlocked debt ceiling talks spook investors

By Saeed Azhar and Shreyashi Sanyal

NEW YORK (Reuters) – Wall Street stocks finished sharply lower on Tuesday and short-term Treasury yields shot up as investor jitters grew over a lack of progress in U.S. debt limit talks.

Representatives of U.S. President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday, as the deadline drew closer to raise the government’s $31.4 trillion borrowing limit or risk default.

Debt limit worries pushed yields on one-month Treasury bills to record highs at 5.888%. [US/]

Investors are also waiting for minutes from the Federal Reserve’s May 2-3 meeting, due on Wednesday, to assess the central bank’s next likely move on interest rates.

Regional Fed Presidents James Bullard and Neel Kashkari on Monday indicated that the U.S. central bank may need to continue hiking rates if inflation remains high.

Michael Wilson, Morgan Stanley (NYSE:)’s equity strategist, said a U.S. debt default is not priced into the market. Even if the two sides agree on a deal, it could still have implications for economic growth, he said.

“If they come to an agreement on the debt ceiling, there will be some concessions on the fiscal spending. It’s an issue for growth,” Wilson said. “Is that going to be an immediate impact, or will it be later? We think there’s a bit of both. At the end of the day, there’s no positive tradeoff.”

According to preliminary data, the S&P 500 lost 46.81 points, or 1.12%, to end at 4,145.82 points, while the Nasdaq Composite lost 158.02 points, or 1.26%, to 12,560.25. The Dow Jones Industrial Average fell 228.41 points, or 0.69%, to 33,058.17.

Strategists polled by Reuters see the benchmark index ending the year at 4,150 points, down slightly from Monday’s close of 4,192.63.

Helping limit larger losses, the S&P Global (NYSE:) data showed U.S. business activity rose to a 13-month high in May, lifted by strong growth in the services sector.

The report was the latest sign that the economy held its momentum early in the second quarter despite rising risks of a recession.

The Commerce Department’s April personal consumption expenditure (PCE) index reading, the Fed’s preferred inflation gauge, is due on Friday.

Broadcom (NASDAQ:) Inc advanced after the chipmaker entered into a multi-billion-dollar deal with Apple Inc to use chips made in the United States. Apple shares (NASDAQ:) fell.

Zoom Video Communications (NASDAQ:) dropped after the video conferencing platform reported its slowest quarterly revenue growth.

Among retail earnings, Lowe’s Companies Inc (NYSE:) cut its annual comparable sales forecast, as demand dwindles for home improvement goods. Lowe’s rebounded from initial losses.

Shares of regional lenders extended gains from Monday, led by a sharp rise in PacWest Bancorp, with the KBW regional banking index hitting a three-week high.