Nasdaq, S&P cut losses, Dow flirts with positive territory as stocks catch late updraft
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Wall Street's major averages had pared some of their losses by late afternoon on Tuesday. Banking jitters continued to simmer with regional lenders extending their decline. Investors were also on the lookout for progress on discussions over raising the debt ceiling.
The tech-heavy Nasdaq Composite (COMP.IND) was now down 0.42% to 12,205.13 points. With its close on Monday, the index officially exited a bear market, having risen 20% from its lowest closing level in December last year.
The benchmark S&P 500 (SP500) slipped 0.21% to 4,129.52 points, while the Dow (DJI) seesawed. The blue-chip index was slightly higher by 0.04% to 33,630.66 points.
Of the 11 S&P sectors, nine were trading in the red, led by Technology and Health Care. Energy and Industrials were the two gainers.
The Financials sector was under pressure, while the SPDR Regional Bank ETF (KRE) and the Invesco KBW Regional Bank ETF (KBWR) retreated for a second straight day. Both ETFs are now on track to post losses in six of seven sessions.
The Federal Reserve's quarterly Senior Loan Officer Opinion Survey (SLOOS) was in the spotlight the previous day for clues about financial conditions. The report showed banks continuing to tighten loan conditions. On Tuesday, the NFIB small business optimism index fell more than expected to 89 in April. However, those finding credit hard to get fell to 6% from 9% in March.
"Four percent reported that financing was their top business problem," the NFIB said. "A net 26% of owners reported paying a higher rate on their most recent loan."
"The one unexpectedly bright spot - relatively - in the survey is the three-point dip in the proportion of respondents saying credit is harder to get, reversing most of the four-point spike in March, immediately after the SVB failure," Pantheon Macro's Ian Shepherdson said. "Whether this marks the end of the credit tightening is another question altogether - we strongly suspect not - but for now it is a welcome development."
Market participants were also looking ahead to Wednesday's consumer price index data for the latest picture on inflation and for clues around the future of the Fed's monetary policy. For over a month now, traders have debated over the potential end to the central bank's rate hikes against a rapid economic slowdown that could lead to recession.
According to the CME FedWatch tool, markets are currently pricing in a ~82% probability of no rate hike at the Fed's monetary policy committee meeting in June. Moreover, the probability of a 25 basis point cut in the July meeting is now at around 33%.
Turning to the fixed income markets, rates were largely unchanged. The longer-end 10-year yield (US10Y) was flat at 3.52% and the more rate-sensitive 2-year yield (US2Y) was up 3 basis points to 4.04%.
The exception continued to be shorter-end maturities in the crosshairs of a debt ceiling deadline. The 1-month yield (US1M) earlier added 20 basis points to hit a session high of 5.69%. U.S. President Joe Biden is expected to meet with congressional leaders for talks on the debt ceiling even as a default looms.
Earnings continued to be a driver for several stock moves. DaVita (DVA) was the top percentage gainer on the S&P 500 (SP500) after the kidney dialysis services provider reported a top- and bottom-line beat. Drug distributor McKesson (MCK) was also among the top percentage gainers after surpassing quarterly expectations and providing in-line guidance.
Conversely, PayPal (PYPL) slumped more than 10% and was the top S&P percentage loser. The payment tech company slashed its operating margin guidance and also saw a rating downgrade from Credit Suisse.