A currency trader looks at a computer monitor near a screen displaying the Korea Composite Stock Price Index (KOSPI) (left) and the exchange rate between the US dollar and the South Korean won in a foreign exchange dealing room in Seoul, South Korea, Wednesday, May 17. Asian stock markets traded mixed on Wednesday as Japanese indicators rose on news of strong economic growth data while other regional countries were mired in uncertainty. (AP photo/Lee Jin-man)
STAN CHOE (AP Business Writer)
NEW YORK — Wall Street rallied Wednesday on hopes the U.S. government could avoid a potentially disastrous default on its debt.
The S&P 500 rose 1.2% after President Joe Biden said he was confident America would not default. The Dow Jones Industrial Average rose 408 points, or 1.2%, while the Nasdaq Composite Index rose 1.3%.
Biden’s comments came after House Speaker Kevin McCarthy said late Tuesday that Democrats and Republicans could reach a deal by the end of the week, although there is still a gap between them. They look ahead to a June 1 deadline when the U.S. government could run out of money unless Congress authorizes more borrowing.
US Treasuries are considered the safest investment possible on the planet, so a default could shake the financial system, and economists say a default could cause widespread damage to the economy as a whole. said to be likely to cause
Wednesday’s surge came after a long and dreary period in which the S&P 500 index moved less than 1% for six straight weeks, up or down. This is the longest period since 2019.
Chun Wang, a senior research analyst at Leuthold, said Congress has raised the country’s debt ceiling many times in the past, most of it without much impact on the stock market. The fear is similar to what happened in 2011.
That’s when Standard & Poor’s downgraded the U.S. government’s credit rating because it hesitated to raise the debt ceiling. The downgrade comes at a time when Europe’s debt crisis is reigniting, and together they have put Wall Street on a week-long rollercoaster.
Shares of companies that get so much of their revenue from the federal government that they could lose so much if they fail to pay their bills rose Wednesday. Lockheed Martin rose 2.1% and Northrop Grumman rose 2.7%.
Debt negotiations are just one of the issues at stake on Wall Street. Concerns about the possibility of a recession later this year have also increased as interest rates rise sharply to curb painful inflation.
One of the main positive factors that has kept the economy out of recession so far is the resilience of spending by US households. They keep spending even as manufacturing, the US banking system and other parts of the economy are cracking under the pressure of high interest rates.
Target said last quarter’s profit decline was smaller than analysts had feared, providing some potentially encouraging data on shopper strength. However, the company did not raise its full-year profit forecast, saying it was seeing a slowdown in sales earlier this year. The company’s stock rose 2.6%.
Home Depot raised concerns yesterday by cutting its earnings forecast for this year after explaining pressures across its business. The next major retailer to report earnings is Walmart, which is expected to do so on Thursday.
The retailer is one of the slowest among the US giants to announce earnings at the beginning of the year. Most S&P 500 companies are doing better than analysts feared. However, the company is still on pace to finish with two consecutive quarters of declines year-over-year.
In addition to the ongoing “earnings slump,” pressure on the US banking industry is also causing Wall Street concerns. Investors have been looking for the next possible weakness after three high-profile failures since March.
Banks have struggled with high interest rates, with some customers pulling money market funds and other accounts in search of higher yields. The jump in interest rates last year has also driven down the value of assets held by many investment banks.
Western Alliance Bancorp and other smaller banks are under a lot of scrutiny, leading to volatility in their stocks. Western Alliance recouped some of its losses after releasing updates including deposit levels through May 12. After gaining 10.2% on Wednesday, it is still down 41.6% since the beginning of the year.
Another bank under close scrutiny, Pacwest Bancorp, rose 21.7% and narrowed its annual loss to about 75.8%.
Overall, the S&P 500 increased 48.87 points to 4,158.77. The Dow rose 408.63 points to 33,420.77 and the Nasdaq rose 157.51 points to 12,500.57.
In the bond market, US Treasury yields rose. The 10-year Treasury yield rose to 3.57% from 3.54% late Tuesday. Helps set interest rates for mortgages and other important loans.
Two-year bond yields, driven by expectations of action by the US Federal Reserve, climbed to 4.16% from 4.08%.
In overseas markets, Japan’s Nikkei Stock Average rose 0.8% after data showed the world’s third-largest economy was growing at its strongest pace since April-June 2022. .
Stocks fell 2.1% in Hong Kong and were mixed with a small move in Europe.
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Contributed by AP Business writers Yuri Kageyama and Matt Ott.