NEW YORK (`) – Wall Street saw a mixed finish on Tuesday as a long list of concerns looms, even as the most pressing crisis appears to be calming as Washington seeks to avoid a default on its debt.
The S&P 500 rose 0.07, or less than 0.1%, to 4,205.52, hovering near its highest level since August. The Dow Jones Industrial Average fell 50.56 points, or 0.2%, to 33,042.78. The Nasdaq Composite, meanwhile, topped the market, up 0.3% as enthusiasm for artificial intelligence continues to grow. It rose 41.74 to 13,017.43.
Tuesday marked the first trade in the US stock market since President Joe Biden and House Speaker Kevin McCarthy reached an agreement that allowed the US government to borrow more money to cover a default on its debt avoid. They must now convince Congress to pass the law before the US government runs out of money to pay its bills, which could happen as early as Monday.
Some on Capitol Hill are unhappy with the details of the deal, and Biden and McCarthy are both working to garner votes. The broad expectation on Wall Street was that Washington would reach a deal in the 11th hour, as failure would likely mean tremendous pain for the economy and financial markets.
But even if there is no default, all that partisan risk could erode even more confidence in the US government. This could result in a further downgrade of the company’s credit rating following Standard & Poor’s rating downgrade in 2011.
Beyond the drama surrounding the country’s debt ceiling, financial markets grapple with a long list of concerns. The economy is slowing, inflation is still high and interest rates could rise further, which would further tighten the reins of the economy and financial markets.
Concerns are also global: China’s economic recovery has been weaker than expected following the easing of anti-COVID restrictions.
US stocks have rallied lately despite these worries after companies reported earnings declines earlier in the year that were not as severe as feared. And at the core is Wall Street’s growing enthusiasm for AI.
Nvidia, whose chips are powering the tech world’s latest onslaught, rose another 3% after more than doubling so far this year. Last week, the company gave a mighty forecast for upcoming sales as it detailed customers of all kinds scrambling to use AI in their businesses.
The total value of Nvidia’s surge is approaching $1 trillion, a threshold surpassed only by the largest stocks, including Apple. The huge gains raise concerns that another bubble could swamp the stock market. But evangelists say AI is the next big revolution that will transform the world economy.
Also helping to bolster Wall Street in recent weeks have been reports of a resilient job market and other signals that the slowing economy may avert a recession.
“I’m sure there will be a lot of money to be made from AI for a select group of companies, but that’s not enough to pull the entire economy out of a possible recession,” said Rich Weiss, senior vice president at American Century Investing .
He acknowledged that the job market remained far better than he expected under the weight of higher interest rates, but pointed to weakness in the housing market, manufacturing, corporate earnings and other areas ahead of a Recession often lags behind the labor market.
“The labor market will follow the others, not the other way around,” said Weiss.
He also highlighted how the stock market’s gains this year have been concentrated in a handful of companies, many of which have benefited from AI. Most stocks in the S&P 500 are down year to date, in part due to economic concerns.
A Tuesday morning report showed that consumer confidence is falling and is well below pre-pandemic levels, though it remains stronger than economists had been expecting. That’s crucial, as ongoing household spending was one of the main reasons investors had to push back their forecasts of an imminent recession by another three to six months.
On the losing side of Wall Street were energy companies. Exxon Mobil fell 0.9% as crude prices fell even more on fuel demand concerns.
In the bond market, government bond yields fell as fears of a potential default eased.
The yield on the 10-year government bond fell to 3.69% from 3.81% late Friday. It helps set interest rates on mortgages and other loans.
The yield on two-year government bonds fell to 4.46% from 4.57%. It tracks expectations for Federal Reserve action more closely.
Traders are largely bracing for another Fed hike in short-term interest rates at its next meeting in two weeks, but the hope is that after more than a year of rapid hikes, this could be the last.
Higher interest rates help slow inflation, but weigh on the economy as a whole, increasing the risk of a recession and lowering the price of investments.
In overseas markets, European stocks were lower while indices in Asia were mostly higher.
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` business journalists Yuri Kageyama and Matt Ott contributed.
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