STOCKS ARE MIXED AS WALL STREET WAITS ON WASHINGTON
Stocks drifted to a mixed finish Monday, as Wall Street waited for the results of a pivotal meeting meant to avoid a potentially disastrous default on the U.S. government’s debt.
The S&P 500 was at a virtual standstill after flipping between small gains and losses through the day. It edged up by 0.65, or less than 0.1 percent, to 4,192.63. The Dow fell 140.05 points, or 0.4 percent, to 33,286.58, and the Nasdaq rose 62.88, or 0.5 percent, to 12,720.78.
The stock market is near its highest level since August, but it’s been mostly remaining within a tight range for weeks as several big worries weigh. The biggest nearterm risk is the possibility of a U.S. default, something that could occur as soon as June 1.
That’s when Washington could run out of cash to pay its bills, unless Congress allows it to borrow more. Because Treasurys are seen as the safest investment on Earth, economists and investors say a default would likely trigger a recession for the economy and deep pain for financial markets.
President Joe Biden and House Speaker Kevin McCarthy were set to meet after U.S. stock markets closed to discuss the debt limit.
Another worry that’s hung over the market is the strength of the U.S. banking system, which has begun to crack under the weight of much higher interest rates. Three high-profile U.S. failures have shaken confidence since March, and investors have been looking for the next possible weak link.
Much scrutiny has been on PacWest Bancorp. Its stock jumped 19.5 percent after it agreed to sell a portfolio of real-estate construction loans with about $2.6 billion in principal still outstanding to Kennedy Wilson.
PacWest is one of the smaller and midsize regional banks that Wall Street highlighted in its hunt for the next possible bank to suffer a drop in confidence. Other banks collapsed after depositors pulled their cash all at once to create debilitating runs. PacWest’s stock is still down 70.2 percent for the year so far.
Elsewhere on Wall Street, Micron Technology dropped 2.8 percent as tensions heighten between China and the United States. China’s government said on Sunday Micron’s products have unspecified “serious network security risks” that could affect national security. It told users of sensitive computer equipment to stop buying Micron products.
Meta Platforms rose 1.1 percent after shaking off news that European regulators hit it with a record $1.3 billion privacy fine. Meta called the decision flawed and unjustified. It said it would appeal.
Meta has been on a tear this year, more than doubling in 2023 already. Other Big Tech companies have also had powerful leaps, much stronger than the rest of the market.
But that split in performance is worrying some market watchers. It’s left the index extremely top heavy, meaning its performance is more dependent on a couple handfuls of stocks than it’s been in decades.
S&P 500 companies are in the midst of reporting a second straight quarter of profit drops from year-ago levels. The question is how much worse they will get because the economy is slowing under the weight of much higher interest rates meant to get inflation under control.
On the more optimistic side is Savita Subramanian, equity strategist at Bank of America. She raised her target for where the S&P 500 will end the year to 4,300 from 4,000. That’s not far from its current level, but she also said in a BofA Global Research report that stocks outside the behemoths at the top will likely be behind most of the gains.
She pointed to improved efficiencies at companies, which should help earnings become more stable, while acknowledging all the risks that could keep keep stocks in a long-term down market, or what’s called a “bear market.”
“For the bear case, talk to the person next to you,” she said, who can bring up everything from worries about the Federal Reserve making a mistake on interest-rate policy to the debt ceiling.
In the bond market, the 10-year Treasury yield rose to 3.72 percent from 3.68 percent late Friday. The twoyear yield rose to 4.32 percent from 4.28 percent.