Wall Street dips amid worldwide swoon
NEW YORK — Wall Street fell again, part of a worldwide swoon for stocks as worries about the economy pile higher.
The S&P 500 fell 0.7% Wednesday after House Speaker Kevin McCarthy said Republicans and Democrats remain far apart in efforts to prevent a default on the U.S. government’s debt.
The main U.S. stock index is on track for its worst week in more than two months as the once-unthinkable creeps closer to possibility. Other markets around the world fell even more on discouraging economic reports. Some of the worst losses came from companies that gave forecasts that fell short of expectations. Stock indexes tumbled 1.7% in London, 1.9% in Frankfurt and 1.6% in Hong Kong.
Inflation in the United Kingdom remains worse than expected, raising worries that the Bank of England may keep hiking interest rates and squeezing its economy. In Germany, business confidence fell in Europe’s largest economy. And in China, worries remain about a weakerthan-hoped reopening from COVID restrictions as tensions rise with the United States over technology and security.
On Wall Street, the focus is squarely on Capitol Hill and the White House, where the U.S. government could run out of cash to pay its bills as soon as June 1 unless Congress allows it to borrow more. The widespread expectation is that a default would result in tremendous economic pain.
The stock market has remained mostly resilient despite the worries. Fear has been concentrated in corners of the bond market, where prices have dropped for Treasury bills due to pay out around the possible date of default. There, the yield on a Treasury maturing June 1 jumped sharply to 7.22%, up by nearly 1.25 percentage points from a day before, according to Tradeweb.
The widespread belief on Wall Street has largely been that Congress would come to an agreement at the 11th hour, as it’s done several times before, because a default would benefit no one.
“It will sort itself out over the next couple of weeks and end up being a positive catalyst,” said Jay Hatfield, chief executive at Infrastructure Capital Advisors.
He’s recently made moves among investments he oversees to protect against drops in stock prices. But he said much of that was because the S&P 500 recently bumped up against a level, 4,200, that it’s had a difficult time getting past.
Concerns are rising that Congress may not feel urgency to act unless markets fall sharply enough to force politicians’ hands. A measure of fear among stock investors on Wall Street climbed 10.4% and is near its highest level since March. That’s when worries were flaring hottest about the strength of the banking system, as it creaked under the weight of much higher interest rates.
Rates are so high because the Federal Reserve has yanked them up at the fastest pace in decades in hopes of getting high inflation under control. High rates do that by putting the brakes on the entire economy and hurting prices for stocks, bonds and other investments. That has many investors bracing for a recession even if Congress reaches a deal on the debt limit.
Traders are hopeful just one more hike may be on the way this summer, if any at all. Federal Reserve officials were divided earlier this month on whether to pause their interest rate hikes at their upcoming meeting in June, according to the minutes of their May 2-3 meeting.
If the Fed does raise rates in June, Hatfield said he expects the next move to be a rate cut, in March.
“And they should have cut them in this past March,” he said. “We have a simple rule that they’re a year behind.”
Helping to limit Wall Street’s losses were several companies that reported stronger results for the start of the year than analyst expected.