Sat, 03 Jun 2023

NEW YORK, May 19 (Xinhua) -- U.S. stocks ended lower on Friday amid concerns over the pause of debt ceiling negotiations in the United States.

The Dow Jones Industrial Average fell 109.28 points, or 0.33 percent, to 33,426.63. The S&P 500 sank 6.07 points, or 0.14 percent, to 4,191.98. The Nasdaq Composite Index shed 30.94 points, or 0.24 percent, to 12,657.90.

Seven of the 11 primary S&P 500 sectors ended in red, with consumer discretionary and communication services leading the laggards by losing 0.84 percent and 0.49 percent, respectively. Meanwhile, energy and health led the gainers by rising 0.73 percent and 0.46 percent, respectively.

Congressional Republican representatives' departure from the negotiation table Friday morning cast doubt on the progress of debt ceiling talks to avert a catastrophic U.S. default.

The White House side is "unreasonable," said Republican Representative Garret Graves, a key ally of House Speaker Kevin McCarthy, adding that the negotiations were on a "pause." His comments came a day after McCarthy's optimistic words about a House vote as early as next week.

There're a lot of uncertainties about what's going to happen in regard to debt ceiling talks, and the stock market could go way down if a deal does not go through by the deadline, according to Peter Cohan, associate professor of management practice at Babson College, a private business school in Massachusetts.

Speaking in an interview with Xinhua on Friday, Cohan said what happened during debt ceiling talks in 2011 could repeat and it could be worse though what happened in 2011 was basically a short-term thing.

Statistics show that the S&P 500 Index plunged nearly 17 percent between Jul. 22 and Aug. 8 during the debt ceiling impasse in 2011.

As Democrats aren't going to support deficit reduction to pay for tax cuts that drive back up the deficit and Republicans are not going to agree to anything that limits tax cuts, so there's really no basis for an agreement, said David A. Super, professor of law and economics at Georgetown University Law Center.

It's overwhelmingly likely to have a short term extension of the debt limit for around two months and "the negotiations will continue for most of the summer," Super told Xinhua in an interview on Tuesday.

The markets could be very much unsettled in the short term and the situation in the market could be worse than that during debt ceiling talks in 2011, according to Super.

Stocks were down amid a slump in regional banks shares and related exchange-traded funds after Treasury Secretary Janet Yellen reportedly told the chiefs of large banks that more mergers may be needed. Yellen raised the prospect that more regional banks may have to be bought by large lenders.

Friday's losses were eased, however, after Federal Reserve Chairman Jerome Powell indicated he was open to a pause in interest rate increases at the central bank's monetary policy meeting in June.

Powell also said on Friday that banking stress could influence the Fed's views on interest rate hikes, with credit tightening likely to slow economic growth and hiring.

Powell has paved the way for the Fed to pause its rate hiking campaign at the June meeting, said Edward Moya, senior market analyst at OANDA, a supplier of online multi-asset trading services.

"The Fed could however resume tightening as Powell reiterated that inflation is far above the Fed's objective. The Fed won't have all the answers on whether inflation will continue to come down all the way to target for a few more months," Moya said.

The Federal Open Market Committee has around 82 percent probability of pausing rate hikes in the upcoming monetary policy meeting in June, according to data from the CME FedWatch Tool on Friday afternoon.

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