Wall Street ended sharply lower on Wednesday, dragged down by real estate and financial stocks. The debt-ceiling negotiations continued to result in a policy deadlock with the deadline looming large. Fed minutes from the May meeting revealed a dovish stance taken by officials, lifting investor mood somewhat. All three major indexes ended in the red.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 0.8% or 255.59 points to close at 32,799.92. Twenty-five components of the 30-stock index ended in negative territory, while five ended in positive.
The S&P 500 lost 0.7%, or 30.34 points, to close at 4,115.24. Ten of the 11 broad sectors of the benchmark index ended in negative territory. The Real Estate Select Sector SPDR (XLRE), the Industrials Select Sector SPDR (XLI) and the Financials Services Select Sector SPDR (XLF) fell 2.2%, 1.3% and 1.3%, respectively, while the Energy Select Sector SPDR (XLE) gained 0.4%.
The tech-heavy Nasdaq declined 76.08 points, or 0.6%, to finish at 12,484.16.
The fear-gauge CBOE Volatility Index (VIX) was up 8.1% at 20.03. A total of 9.7 billion shares were traded on Wednesday, lower than the last 20-session average of 10.5 billion. Decliners outnumbered advancers on the NYSE by a 3.71-to-1 ratio. On the Nasdaq, a 2.34-to-1 ratio favored declining issues.
Debt-Ceiling Talks Continue to Weigh Down on The Market
The debt-ceiling crisis continued to weigh down on the market as continued negotiations between the Republicans and the Democrats bore no fruit. Even as House Speaker McCarthy insisted that he was in regular touch with President Biden over the phone, it was apparent that staff-level negotiations were not delivering any breakthrough.
In the morning, Kevin McCarthy said in s press conference that negotiators remain divided on spending caps, and blamed the Democrats for coming to the table so late. “I just think it’s common sense. It’s reasonable and it’s rational that we spend less next year than we spend this year. Every household would do this,” he said. However, he said that he remained hopeful that progress would be made eventually.
In fact, after a four-hour White House meeting later in the day, McCarthy sounded even more positive and said that negotiations had improved and would continue in the evening. White House spokesperson Karine Jean-Pierre also said that some progress was made. "If it keeps going in good faith, we can get to an agreement here," she said at a briefing while discussions were taking place.
The market has increasingly grown weary about the two major parties not reaching a consensus on the debt-ceiling issue and has now fallen for four straight sessions. Investors have started to price in an eventual economic downturn resulting from the country defaulting on its debt obligations. Real estate and Financials became the biggest losing sectors of the day while technology continued to slide.
Consequently, shares of Boston Properties, Inc. BXP and NXP Semiconductors N.V. NXPI slid 4.9% each. Each carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fed Minutes Bring Some Good News
In recent sessions, markets have eagerly awaited signals from top Fed officials to understand whether a soft landing of the economy is attainable after the tough interest rate regime seen since last year. Stocks pared their losses somewhat, hence, after the release of minutes from the Fed's May meeting. It was noted that officials generally agreed that the need for further interest rate increases "had become less certain."
This brought some joy, but the effects of this did not last long. In a separate event on Wednesday, Fed Governor Christopher Waller said he is concerned about the lack of progress on inflation, and while a rate-pause remained a possible outcome from the Fed’s June meeting, an end to the hiking campaign is not likely.
Per a government report, for the week ending May 19, 2023, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 12.5 million barrels from the previous week. For the previous week, the reported value remained unrevised at an increase of 5 million barrels.
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