(Bloomberg) — Stocks headed toward their biggest slide since May as a Senate hearing with Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen left investors reluctant to pile back into riskier assets.
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Both officials warned that a U.S. default due to a failure to raise the debt ceiling would have catastrophic consequences. Senator Elizabeth Warren, pressing Powell on his record on financial regulation, said he’s a “dangerous man to head up the Fed” and that’s why she will oppose his renomination. That presents a difficult choice for the White House as it mulls whether to reappoint him when his term expires in February.
Democratic leaders are discussing how to raise the debt ceiling after Yellen warned that her department will effectively run out of cash around Oct. 18 unless Congress suspends or increases the limit. Her latest timeline is somewhat sooner than many on Wall Street anticipated, and the warning intensified signs of market concern amid an impasse between Republicans and Democrats on addressing the situation.
“We would expect a deal to get done, but it appears as though both sides are a bit more entrenched compared to previous periods,” said Brian Price, head of investment management at Commonwealth Financial Network. “A government shutdown is a risk factor that we’ll be watching in the coming days and weeks.”
In a tumultuous session of above-average trading volume, the S&P 500 extended its September rout. Technology shares — which have led the surge in equities from the depths of the pandemic — underperformed companies that will likely benefit the most from an economic revival. The yield on Treasury 30-year bonds climbed more than 10 basis points earlier Tuesday.
The world economy is facing a buildup in stagflationary forces as surging energy prices boost inflation and slow the recovery from the pandemic recession. Brent oil hovered near the key, psychological level of $80 a barrel, while natural gas surged.
U.S. consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continue to dampen sentiment. Home prices surged 19.7% in July — once again posting the biggest jump in more than 30 years.
Here are some events to watch this week:
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Japan’s ruling party votes to elect leader, Wednesday
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Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
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House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
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China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
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Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 1.9% as of 1:39 p.m. New York time
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The Nasdaq 100 fell 2.6%
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The Dow Jones Industrial Average fell 1.5%
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The MSCI World index fell 1.8%
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The Russell 2000 Index fell 1.6%
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.1% to $1.1682
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The British pound fell 1.2% to $1.3536
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The Japanese yen fell 0.4% to 111.49 per dollar
Bonds
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The yield on 10-year Treasuries advanced four basis points to 1.52%
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Germany’s 10-year yield advanced two basis points to -0.20%
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Britain’s 10-year yield advanced four basis points to 0.99%
Commodities
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West Texas Intermediate crude fell 0.3% to $75.21 a barrel
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Gold futures fell 0.9% to $1,737 an ounce
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