Wall Street closes down, dollar dips as debt ceiling talks stall

Yesterday the hint that debt ceiling negotiations were nearing a solution sent the markets soaring. Today the hint the talks had stalled sent it all tumbling though losses were moderate. As today’s expert put it, “It’s like watching a nuclear standoff and hoping the other guy isn’t crazy enough to hit the button.” In remarks today, Powell continued his stance that there was still too much uncertainty to say whether more tightening will happen. But the fact that the bank crisis has created tighter lending it is hoped will cause the Fed to at least pause. The graph below shows clearly that both CPI and PCE have steadily declined with each rate hike. Volume remains below average at about 9.9 billion. 

Fri May 19, 2023  4:22 PM

Wall Street closes down, dollar dips as debt ceiling talks stall

By Stephen Culp

DJ: 33,535.91  +115.14       NAS: 12,688.84  +188.27       S&P: 4,198.05  +39.28     5/18

DJ: 33,426.63  -109.28        NAS: 12,657.90  -30.94          S&P: 4,191.98  -6.07        5/19

SINGAPORE, May 19 (Reuters) - U.S. stocks ended lower and the dollar lost ground on Friday as negotiations to raise the U.S. debt ceiling were put on hold, jarring market participants as they headed into the weekend and the United States moved closer to the deadline to avoid default.  While all three major U.S. stock indexes ended the session modestly in the red, they all notched gains for the week, which was marked by solid economic data and the tail end of a better-than-expected earnings season.  Initial reports that debt ceiling negotiations had reached an impasse rattled markets even as investors were scrutinizing Federal Reserve Chairman Jerome Powell's remarks in a panel discussion for clues regarding next month's interest rate decision.

"All eyes are on Washington and investors remain focused on the debt ceiling," said David Carter, investment specialist at JPMorgan Private Bank in New York. "It's a bit like watching a nuclear standoff and hoping the other guy isn’t crazy enough to hit the button."  In his remarks, Powell said that uncertainties surrounding the lagging impact of past rate hikes and recent bank credit tightening made it unclear whether more monetary tightening will be necessary.

"Investors are trying to better understand if tighter bank lending due to the regional bank crisis will allow the Fed to at least pause on future rate increase," Carter added. "This is new territory and (it is) not perfectly clear if the Fed will allow tighter bank lending to replace tighter monetary policy."

     Reuters Graphics 

Adding to market volatility, Treasury Secretary Janet Yellen told bank CEOs that more mergers may be necessary to staunch the banking liquidity crisis, according to CNN.

The Dow Jones Industrial Average (.DJI) fell 109.28 points, or 0.33%, to 33,426.63, the S&P 500 (.SPX) lost 6.07 points, or 0.14%, to 4,191.98 and the Nasdaq Composite (.IXIC) dropped 30.94 points, or 0.24%, to 12,657.90.

Shares of regional banks, which were the first in the industry to feel the impact of the Fed's tightening policy, fell, with the KBW Regional Banking index (.KRX) down nearly 2.17% on the session. Still, the index was up 6.2% on the week to snap a three-week streak of declines as investors viewed the troubles in the sector as largely contained for now.

Shares of Morgan Stanley (MS.N) lost 2.66% after CEO James Gorman announced he would step down from the role in the next 12 months.  Foot Locker Inc (FL.N) plummeted and suffered its biggest daily percentage drop since Feb. 25, 2022 after the footwear retailer cut its annual sales and profit forecasts.  The warning also weighed on Dow component Nike Inc (NKE.N), down 3.46% and Under Armour Inc (UAA.N), which closed 4.20% lower.  Foot Locker's update wraps up a week of caution from other retailers this week, including Target Corp (TGT.N), Home Depot Inc (HD.N) and TJX Companies Inc (TJX.N), as consumers adjust to stubbornly high inflation and higher interest rates.

Volume on U.S. exchanges was 9.86 billion shares, compared with the 10.62 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancers on the NYSE by a 1.36-to-1 ratio; on Nasdaq, a 1.19-to-1 ratio favored decliners.  The S&P 500 posted 28 new 52-week highs and three new lows; the Nasdaq Composite recorded 79 new highs and 87 new lows.