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Market Snapshot: Dow sinks on Home Depot disappointment; debt-ceiling talks in spotlight

U.S. stocks fell Tuesday morning, as investors weighed data on retail sales and a disappointing outlook from Home Depot, while awaiting another round of debt-ceiling talks between the White House and congressional leaders.

How stocks are trading

  • The Dow Jones Industrial Average DJIA, -0.62% fell 215 points, or 0.6%, to 33,134.
  • The S&P 500 SPX was down 14 points, or 0.3%, at 4,122.
  • The Nasdaq Composite COMP, +0.17% was off 6 points, or 0.1%, at 12,358.

Stocks rose modestly Monday, with the Dow snapping a five-session losing streak.

What’s driving markets

Investors’ eyes are on the U.S. government debt ceiling talks later Tuesday between President Joe Biden and House Speaker Kevin McCarthy. The White House says the meeting will start at 3 p.m. Eastern.

Treasury Secretary Janet Yellen on Monday repeated June 1 as the date when her department may be unable to pay all its bills in the absence of a debt-ceiling increase. The U.S. economy “hangs in the balance” without a deal raising the country’s borrowing limit, she said Tuesday. McCarthy contradicted recent optimism about a deal by stating the two sides were still “far apart.”

Concerns about the impact on markets of a technical default by the U.S. has capped recent gains for stocks, which came after a better-than-expected first-quarter earnings reporting season and inflation easing to a two-year low. Consequently, the S&P 500 index remains cemented within the 3,800 to 4,200 range it has inhabited for about six months.

Some analysts were skeptical of a deal occurring soon. “The negotiations will likely remain tight as Republicans ask for decent spending cuts to accept a debt ceiling relief, while Biden is not willing to compromise on spending into the election year,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The waiting is hard for investors, according to Seema Shah, chief global strategist at Principal Asset Management. “Since both sides know what is at stake, default is improbable. However, every day closer to the Treasury’s June 1 deadline without a resolution will likely elevate volatility in markets, trim demand for U.S. risk assets, and even expedite recession,” Shah said.

Treasury yields rose on Tuesday morning, including the 6-month Treasury bill TMUBMUSD06M, 5.223% rate rising to around 5.2%.

Given the uncertainty, many traders are choosing to keep their powder dry. Wall Street on Monday recorded its lowest volume day of the year, according to Dow Jones Market Data.

Investors should indeed favor caution, argued Stephen Innes, managing partner at SPI Asset Management.

“Some investors think we are nearing a point where risk rewards could be more favorable, given that politicians historically have given in to the face of crisis. Although arguably, we could enter a very tricky period, and discussion could drag out. But again, one is playing the game of headline poker on either side of the bullish or bearish table, which keeps discretionary folks sidelined. Smart money doesn’t flip coins,” Innes wrote in a morning commentary.

Traders are also keeping an eye out for fresh information on the health of the U.S. consumer.

April retail sales increased 0.4%, buoyed by car sales and consumer online spending online. Sales were forecast to increase 0.8%, according to economists polled by The Wall Street Journal. Stripping out cars and gas, sales climbed 0.6%.

Earlier Tuesday, investors also got a look at consumers through the window of Home Depot HD, -1.34% fiscal first-quarter earnings. Shares of the Dow component fell 2.2% after providing poorly-received earnings and cutting its 2023 sales outlook.

undefined LOW, -1.23% dropped 2.2% in sympathy.

Retail sales showed muscle but there are still near-term worries ahead, like the debt ceiling talks, according to Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

“We have been pleasantly surprised by the resilience of the economy and are beginning to believe that 2023 may turn out to be a good year for stocks and it’s 2024 that we should worry about instead,” Zaccarelli said.

In another upbeat sign, U.S. industrial production increased 0.5% in April after two flat months, according to the Federal Reserve.

There is also a flurry of Fed officials speaking, including Richmond Fed President Tom Barkin at 10:30 a.m.; New York Fed President John Williams at 12:15 a.m.; and Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee on a panel starting at 7 p.m.

Companies in focus

  • Western Alliance Bancorp. WAL, +3.85% rose 3.9% as regional banks continued to find support from news that the Federal Deposit Insurance Corp. plans to replenish its coffers with an assessment that falls mainly on the very largest banks.
  • Capital One Financial Corp. COF, +2.86% shares rose more than 2% after a filing showed Warren Buffett’s Berkshire Hathaway Inc.  BRK.A, +0.25% BRK.B, -0.01% had taken a near $1 billion bet on the credit card and banking group, buying a 2.6% stake in the first quarter.
  • Shares of Horizon Therapeutics PLC HZNP, -15.38% dropped more than 15% following reports the Federal Trade Commission is expected to file a lawsuit to block Amgen Inc.’s AMGN, -1.08%  $27.8 billion acquisition of the group that develops treatments for rare autoimmune and inflammatory illnesses.

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