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Stocks Slip Worldwide Wednesday 05/31 15:35
Wall Street slipped as stocks slumped worldwide Wednesday on worries about
the strength of the global economy and inflation.
NEW YORK (AP) -- Wall Street slipped as stocks slumped worldwide Wednesday
on worries about the strength of the global economy and inflation.
The S&P 500 fell 25.69, or 0.6%, to 4,179.83. The Dow Jones Industrial
Average dropped 134.51, or 0.4%, to 32,908.27, and the Nasdaq composite lost
82.14, or 0.6%, to 12,935.29.
Stock markets in Asia fell even more following discouraging data on
manufacturing from China. The world's second-largest economy has not been
rebounding as strongly as many investors had hoped. That raises worries when
economies around the world are contending with still-high inflation and much
higher interest rates than a year earlier.
Wall Street has been able to weather such concerns pretty well recently,
largely because of gains for a handful of tech companies and others getting
swept up in the buzz around AI. The S&P 500 managed to close out May with a
modest gain.
But some of the air seeped out of those big winners on Wednesday. Nvidia,
whose chips are helping to power the surge into AI, dropped 5.7% for its first
fall since it gave a monster forecast last week for upcoming sales.
Worries are also rising for the larger U.S. economy, which has slowed under
the weight of much higher interest rates. The Federal Reserve has raised rates
at a furious pace since early last year in hopes of getting inflation under
control. But high rates work by hurting the economy and hitting prices for
investments.
"We see this as a race for weakness between inflation and economic
activity," said Tony Roth, chief investment officer at Wilmington Trust.
Either inflation needs to break lower to return to the Fed's target, which
would allow it to go easier on interest rates, or the economy will fall into
recession. Roth said both the economy and inflation have remained strong for
longer than he expected: "It's a very slow race to the bottom."
A report released Wednesday morning bolstered expectations for the Federal
Reserve to hike rates at least one more time. It showed employers advertised
more job openings than expected, the latest signal of a job market that's
remained remarkably resilient.
While that's good news for workers and for the economy, it also gives the
Fed more leeway to keep rates high. A strong job market could keep upward
pressure on workers' wages, which Wall Street fears could keep inflation high.
"The increase in job openings is the worst news the Fed could have because
that just puts more pressure on wages," Roth said.
But stocks pared their losses in the afternoon after a Fed official hinted
the central bank may hold rates steady at its next meeting in two weeks.
"Indeed, skipping a rate hike at a coming meeting would allow the Committee
to see more data before making decisions about the extent of additional policy
firming," Fed Gov. Philip Jefferson said in a speech. But he said the Fed could
still raise rates again at a later meeting.
Other, smaller portions of the economy have shown much more pain in the face
of higher rates. A report on Wednesday morning suggested manufacturing in the
Chicago region is contracting by much more than economists feared. .
The U.S. banking system has also come under pressure. The Fed-driven surge
in rates means customers are pulling their deposits in hopes of making more in
interest at money-market funds. Higher rates have also knocked down the values
for bonds and other investments banks made when rates were low.
Bubbling behind all these worries is a still simmering drama in Washington
about a potential default on the U.S. government's debt.
President Joe Biden and House Speaker Kevin McCarthy are trying to wrangle
enough votes to pass a deal to allow the U.S. government to borrow more money.
Without it, the U.S. government could run out of cash to pay its bills as soon
as Monday.
On Wall Street, Advance Auto Parts plunged 35 after it reported much weaker
profit for the latest quarter than analysts expected. The retailer also said it
expects pressures to continue through 2023, and it cut its full-year financial
forecast and reduced its dividend.
Hewlett Packard Enterprise tumbled 7.1% after it reported weaker revenue for
the latest quarter than expected.
Ford Motor fell 4.7% after CEO Jim Farley told the Bernstein Decisions
Conference that electric cars will cost more to make than gas-powered vehicles
until at least 2030.
In stock markets abroad, indexes tumbled 1.9% in Hong Kong, 1.5% in France
and 1.5% in Germany.
In the bond market, the yield on the 10-year Treasury fell to 3.62% from
3.70% late Tuesday. It helps set rates for mortgages and other important loans
that influence the housing and other markets.
The two-year yield, which moves more on expectations for Fed action, fell to
4.39% from 4.46%.
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