Wall Street slides as debt worries worsen

Stocks slid Tuesday as the U.S. government crept closer to the edge of a potentially disastrous default on its debt.

The S&P 500 fell 1.1% after House Speaker Kevin McCarthy said, “We're not there yet” on a deal to prevent the U.S. government from running out of cash. That followed a meeting late Monday that he and President Joe Biden called productive but ultimately ended with no agreement.

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

Until now, the stock market has remained largely resilient even as Washington approached a June 1 deadline. That's when the U.S. government may no longer be able to pay its bills, unless Congress allows it to borrow more. Economists and investors widely believe a default would send shockwaves through the global economy and financial markets.

The assumption on Wall Street has been for Congress to reach a deal at the 11th hour, as it's already done several times before, because the alternative simply seems too dire for anyone to allow.

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

“There's a theory that neither one looks like a hero until there is that scare of cascading prices,” said Keith Buchanan, senior portfolio manager at Globalt Investments. “One party or both can seem like white knights.”

Portions of Wall Street have shown more concern, particularly in the bond market where some Treasury bills are supposed to get repaid around the date of a possible default. Prices for those bonds have fallen, in part because of the debt-ceiling worries, which in turn has pushed up their yields.

But the stock market hasn't shown as much concern. Buchanan said that may be because it's difficult to know how prices across different markets would react to something that's never happened before and was once unthinkable.

He said he hasn't made any moves to investments he oversees because of fears of a default, at least not yet.

“I think everyone's taking it moment by moment,” he said. “Every minute that goes by raises the urgency.”

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

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