Wall Street’s main indexes fell on Tuesday after Treasury Secretary Janet Yellen said the US government could run out of money within a month, while investors awaited the Federal Reserve’s policy decision.
The Dow Jones Industrial Average plunged 566 points, or 1.7%, to 33,485, the Nasdaq slipped 1.5% and the S&P 500 was down 1.7%.
The cost of insuring against a default hit fresh highs as Yellen said the government will be unlikely to meet all payment obligations by “early June,” prompting President Joe Biden to summon four top congressional leaders to the White House next week.
“The consensus view is we will get some resolve on this … but the closer we get to that deadline without a resolve, there is a likelihood that this becomes more precarious for equity markets,” said Art Hogan, chief market strategist at B. Riley Wealth.
The central bank is expected to deliver a 25-basis-point rate increase on Wednesday and then hold rates steady for the rest of 2023, according to a Reuters poll.
“In large part, we’re looking at another wait-and-see day until we get to the Fed meeting,” Hogan added.
Worries about an economic downturn and concerns about stress in the banking sector have fueled expectations of rate cuts in the latter half of the year.
However, with inflation running well over the central bank’s 2% target and a still-strong labor market, chances of rate cuts seem less likely.
US stocks ended little changed on Monday following First Republic Bank’s weekend auction that led to a rout in the regional bank shares, while JPMorgan Chase gained after the largest US bank picked up the beleaguered lender’s assets.
Energy stocks were the worst hit in a broad-based market decline, followed by shares of material and industrial companies.
Analysts expect first-quarter earnings for S&P 500 companies to fall 1.9% from a year earlier following better-than-expected reports from some technology and growth giants, a sharp improvement from the 5.1% drop expected at the start of April, according to Refinitiv data.
Pfizer climbed 1.5% after its first-quarter profit beat estimates, boosted by strong demand for its recently acquired products and pneumococcal vaccines.
Uber Technologies jumped 6.4% as the ride-hailing firm forecast quarterly core earnings above estimates. Smaller rival Lyft lost nearly 2%.
Educational services company Chegg tanked 45.5% on a downbeat second-quarter revenue forecast on increasing competition from ChatGPT.
Icahn Enterprises dropped 6.7% after short seller Hindenburg Research said it has a short position in activist investor Carl Icahn-controlled energy-to-pharma conglomerate.