Stocks Fall as Growth Shares Hold Ground

Stocks Slide as Market Downturn Overshadows Growth Support. Stocks experienced a significant slide on Tuesday, despite initial support from growth stocks. Shares of companies across various industries traded lower as debt-ceiling negotiations remained at a standstill.

The S&P 500 slipped by 0.6%, while the Nasdaq Composite saw a marginal decrease of 0.2%. The Dow industrials took a hit of 336 points, accounting for a 1% drop.

Before the market opened, retail-sales data indicated a modest increase in spending among Americans in April. However, consumers are holding off on significant purchases and allocating more of their funds toward experiences.

This shift in consumer behavior adversely affected Home Depot, which reported a decline in sales for the first quarter, resulting in a 2.2% decline in share prices for the day. Year-to-date losses for Home Depot have now reached 11%. Despite the gloomy outlook for Home Depot, the S&P 500’s dominant sectors this year, namely communication services and tech, managed to finish the day in positive territory.

Stocks Slide as Alphabet Surges: Concerns Over Market Discrepancy

Shares of Google-parent Alphabet experienced a notable rise of 2.7% on Tuesday, providing a boost to the Nasdaq. A recent securities filing revealed that billionaire Bill Ackman’s hedge fund, Pershing Square Capital Management, had established a billion-dollar stake in the tech company during the first quarter.

Terry Sandven, Chief Equity Strategist at U.S. Bank Wealth Management, expressed concern over the significant discrepancy between stocks performing well, particularly in the technology sector, and the overall market. Sandven believes that the current environment of persistent inflation, elevated interest rates, and downward earnings revisions does not bode well for equities.

Attention on Wall Street now turns to earnings reports from major retailers such as Target and Walmart, which will provide insights into American spending habits. These reports will be closely watched as market participants assess the impact on stocks.

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Meanwhile, concerns surrounding the debt ceiling have escalated, further adding pressure to stocks. Treasury Secretary Janet Yellen has emphasized the urgency of raising the federal borrowing limit to avoid potential payment issues starting from June 1. Yellen reiterated the severity of a potential debt-ceiling mishap during remarks to community bankers on Tuesday.

Approaching Congressional recesses may hamper negotiations due to unavailability in late May. Jason Pride, Chief of Investment Strategy and Research at Glenmede, suggests calling additional sessions or last-minute suspensions to address the issue. Nonetheless, Pride anticipates increased market volatility as early June approaches.

Furthermore, achieving a clean debt-ceiling increase, but limiting fiscal spending in any deal, could impede growth, decrease corporate profits, and further weigh on stocks.

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The market for short-term U.S. government debt has also been affected by the debt-ceiling concerns. Many investors are avoiding Treasury bills maturing around early June, when the Treasury may face difficulties in meeting certain payment obligations. On the other hand, some investors are taking advantage of the higher rates on these securities, anticipating a resolution from the government.

Following the release of the retail-sales data, Treasury prices declined, resulting in higher yields. The yield on the 10-year Treasury increased to 3.548% from 3.506% on Monday, while the two-year yield finished at 4.072% from 4.004%, being particularly sensitive to monetary policy expectations.

International markets witnessed a broad decline, with the Stoxx Europe 600 slipping by 0.4% and the Shanghai Composite experiencing a 0.6% loss. Japan stood as an outlier, as the Nikkei 225 rose by 0.7%, and the Tokyo Stock Exchange’s Topix index reached its highest level since 1990.