By Frances Yue and Andrew Keshner
U.S. stocks ended lower Tuesday, as investors weighed data on retail sales and a disappointing outlook from retailer Home Depot, while tracking another round of debt-ceiling talks between the White House and congressional leaders.
How stocks traded
Stocks rose modestly Monday, with the Dow snapping a five-session losing streak.
What drove markets
Investors were focused on U.S. government debt ceiling talks Tuesday between President Joe Biden and House Speaker Kevin McCarthy, which ended shortly before market close.
Read: McCarthy says 2nd debt-ceiling meeting was 'a little more productive,' while Biden says he's optimistic afterward
Treasury Secretary Janet Yellen on Monday repeated June 1 as the date when her department may be unable to pay all its bills in the absence of a debt-ceiling increase. The U.S. economy "hangs in the balance" without a deal raising the country's borrowing limit, she said Tuesday.
Concerns about the impact on markets of a technical default by the U.S. has capped recent gains for stocks, which came after a better-than-expected first-quarter earnings reporting season and inflation easing to a two-year low. Consequently, the S&P 500 index remains cemented within the 3,800 to 4,200 range it has inhabited for about six months.
Some analysts were skeptical of a deal occurring soon. "The negotiations will likely remain tight as Republicans ask for decent spending cuts to accept debt ceiling relief, while Biden is not willing to compromise on spending into the election year," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
Seema Shah, chief global strategist at Principal Asset Management, said a default of U.S. debt is improbable, since both sides know what is at stake. However, "every day closer to the Treasury's June 1 deadline without a resolution will likely elevate volatility in markets, trim demand for U.S. risk assets, and even expedite recession," Shah said.
Treasury yields rose Tuesday, including the 6-month Treasury bill rate rising to above 5.2%.
Traders also kept an eye out for fresh information on the health of the U.S. consumer.
April retail sales increased 0.4%, buoyed by car sales and consumer online spending online. Sales were forecast to increase 0.8%, according to economists polled by The Wall Street Journal. Stripping out cars and gas, sales climbed 0.6%. In an upbeat sign, U.S. industrial production increased 0.5% in April after two flat months, according to the Federal Reserve.
"Economic data flows are coming in a period of time when some things look more like a recession, and then we get a data point that doesn't," according to Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management.
"I think there's just a slew of confusing economic indicators and other issues like the debt ceiling that are out there that are causing investors to hit the pause button on buying," Schutte said in a call.
Earlier Tuesday, investors also got a look at consumers through the window of Home Depot (HD) fiscal first-quarter earnings. Shares of the Dow component finished down 2.2% after the retailers poorly-received earnings and a cut to its 2023 sales outlook(LOW) dropped 1.2% in sympathy.
Investors are also hearing from Fed officials. Richmond Federal Reserve President Tom Barkin said Tuesday that the central bank's statement after their meeting a few weeks ago is best interpreted as giving officials the option to hike again in June or to pause.
"I liked the optionality that was implied in the statement we did after the last meeting, I think it gives you time... to say either there's still more we need to do so let's do more or its still okay to wait," Barkin said, in an interview on Bloomberg Television.
Meanwhile, Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee will be on a panel starting at 7 p.m.
Companies in focus
-- Jamie Chisholm contributed to this article.
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May 16, 2023 16:53 ET (20:53 GMT)
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