U.S. and Canadian stocks finished sharply lower on Tuesday, and short-term government bond yields shot up, as investor jitters grew over a lack of progress in U.S. debt limit talks.
Representatives of U.S. President Joe Biden and congressional Republicans ended another round of debt ceiling talks on Tuesday, as the deadline drew closer to raise the government’s US$31.4 trillion borrowing limit or risk default.
Debt limit worries pushed yields on one-month U.S. Treasury bills to record highs at 5.888%.
Michael Wilson, Morgan Stanley’s equity strategist, said a U.S. debt default is not priced into the market. Even if the two sides agree on a deal, it could still have implications for economic growth, he said.
“If they come to an agreement on the debt ceiling, there will be some concessions on the fiscal spending. It’s an issue for growth,” Wilson said. “Is that going to be an immediate impact, or will it be later? We think there’s a bit of both. At the end of the day, there’s no positive tradeoff.”
Investors are also waiting for minutes from the Federal Reserve’s May 2-3 meeting, due on Wednesday, to assess the central bank’s next likely move on interest rates.
Regional Fed Presidents James Bullard and Neel Kashkari on Monday indicated that the U.S. central bank may need to continue hiking rates if inflation remains high.
The Commerce Department’s April personal consumption expenditure (PCE) index reading, the Fed’s preferred inflation gauge, is due on Friday.
The Toronto Stock Exchange’s S&P/TSX composite index ended down 205.05 points, or 1%, at 20,146.01, its lowest closing level since March 31.
Technology fell nearly 3% as bond yields climbed. Those yields rose across the curve, catching up with moves in U.S. Treasuries as the Canadian market reopened following the Victoria Day holiday on Monday. The Canada 10-year yield Monday touched its highest level since March 9 at 3.258% before dipping slightly to 3.237%, up 10.1 basis points on the day.
Industrials in Toronto lost 2.4% and the materials group, which includes precious and base metals miners and fertilizer companies, was down 2%.
Helping to limit the TSX’s decline was a gain of 1.3% for the energy sector. Oil futures settled 1.2% higher at US$72.91 as traders weighed the prospect of further OPEC+ output cuts.
The S&P 500 benchmark index declined 1.12% to end at 4,145.58 points. The Nasdaq Composite fell 1.26% to 12,560.25 points, and the Dow Jones Industrial Average slid 0.69% to 33,055.51 points.
Strategists polled by Reuters see the S&P 500 ending the year at 4,150 points, down slightly from Monday’s close of 4,192.63.
Helping limit larger losses, the S&P Global data showed U.S. business activity rose to a 13-month high in May, lifted by strong growth in the services sector.
The report was the latest sign that the economy held its momentum early in the second quarter despite rising risks of a recession.
Broadcom Inc advanced 1.2% after the chipmaker entered into a multi-billion-dollar deal with Apple Inc to use chips made in the United States. Apple shares fell 1.5%.
Zoom Video Communications dropped over 8% after the video conferencing platform reported its slowest quarterly revenue growth.
Among retail earnings, Lowe’s Companies Inc cut its annual comparable sales forecast, as demand dwindles for home improvement goods. Lowe’s ended up 1.7%.
Shares of regional lenders extended gains from Monday, led by a 7.9% gain in PacWest Bancorp, with the KBW regional banking index rising 0.9%.
Declining stocks outnumbered rising ones within the S&P 500 by a 3.5-to-one ratio. The S&P 500 posted three new highs and one new low; the Nasdaq recorded 90 new highs and 70 new lows.
Reuters, Globe staff