All three major stock indexes on Wall Street finished lower on Tuesday as investors grew cautious ahead of a fiscal policy meeting to discuss the debt ceiling.
The Dow Jones index closed at 33,561.81, losing 56.88 points or 0.17 percent. The S&P 500, which tracks the performance of the top U.S. companies, finished at 4,119.17, falling by 18.95 points or 0.46 percent. Meanwhile, the Nasdaq Composite concluded the trading session at 12,179.55, declining by 77.36 points or 0.63 percent.
“Companies have generally been beating earnings expectations, but earnings season is always choppy, and today we have some weaker results. That’s weighing a bit on the market.”
Tim Ghriskey, Senior Portfolio Strategist at Ingalls & Snyder
Quarterly earnings reports influence Wall Street’s performance, according to analysts. Ingalls & Snyder senior portfolio strategist Tim Ghriskey said companies “generally” beat earnings expectations, but there were some “weaker results” that weighed on the market.
Shares of PayPal fell by 12.73 percent to $65.90 after the fintech firm cut its margin forecast. The stock became one of the biggest drags in the S&P 500 and Nasdaq. Skyworks Solutions also dropped by 5.15 percent after the Apple supplier projected below-estimated current-quarter revenue.
Semiconductor companies generally finished lower, with the Philadelphia SE Semiconductor Index posting a 1.87 percent loss. Qualcomm and Broadcom slid 2.35 percent and 1.68 percent, respectively.
The stock of PacWest Bancorp was volatile throughout the trading session before closing 2.35 percent higher to $6.11. Interactive Brokers chief strategist Steve Sosnik said it was “far too early to say that things are normalized” just because several high-risk regional lenders were “having a good day.”
Boeing shares increased by 2.34 percent after budget air travel operator Ryanair Holdings ordered 150 new 737-10 units. Novavax jumped by 27.79 percent after the drug producer announced a plan to cut a quarter of its global workforce. Meanwhile, dialysis services provider DaVita saw a 12.90 percent increase after it projected higher annual profit as demands picked up in the U.S.
Analysts said the market’s sentiment was partially influenced by the unresolved debt ceiling debate in Congress.
“Overall, it’s a relatively mild day, but both the debt ceiling as well as the inflation are causing some anxiety,” Schwab Center managing director of trading and derivatives Randy Frederick said.
This Friday, U.S. President Joe Biden and top politicians will discuss the current debt ceiling crisis after failing to reach an agreement on Tuesday. Republicans said they would agree to increase the debt ceiling if the Biden administration cut public expenditures and limit spending growth. The administration, however, said that could potentially limit the government’s programs.
Treasury Secretary Janet Yellen previously said that the U.S. could default on its debts as soon as next month if it failed to raise the national debt limit on time. Yellen warned that an “economic catastrophe” would happen if the U.S. failed to pay its debts. It can immediately push the U.S. into a recession, significantly affecting not only financial markets but also the livelihoods of the U.S. people.
‘Hard landing’ for U.S. economy
The U.S. economy is on the brink of a recession and will likely hit a “hard landing,” according to Duquesne Capital founder Stanley Druckenmiller. A hard landing is a state of a significant economic downturn after a period of rapid growth.
Druckenmiller attributed the Federal Reserve’s aggressive monetary policy in the past year to the bleak economic outlook. The Fed began its rate-hiking campaign in March 2022 to bring soaring inflation down to the two percent target. The central bank has so far increased the interest rate ten times consecutively.
U.S. stocks and the dollar have displayed volatility in the past year due to the Fed’s policy. A recession is expected to further bring down the value of both asset categories, with the S&P 500 potentially falling by 20 percent.