The US stock market could not develop a rally, defying expectations. The talks on raising the US debt ceiling ended in nothing. Experts are making alarming warnings and investors are on edge. Hawkish comments by Fed’s policymakers are adding fuel to the fire, thus exerting extra pressure on Wall Street.

The stock market opened a new trading week with anxious sentiment. Amid risk aversion and suspense in the talks on the debt limit, the benchmark indices closed mixed. The Dow Jones declined by 0.42%. The Nasdaq gained 0.50%. The S&P 500 closed almost flat with a 0.02% uptick at 4,192.
The major stock indices traded in the red in the New York pre-market. Futures on the stock indices slipped by 0.2% in sync. The S&P 500 is expected to trade in the intraday corridor between 4,150 and 4,220.
The lingering talks on the US debt ceiling did not end with a deal. Lawmakers dropped both good and bad hints and decided to go ahead on Tuesday.
President Joe Biden and House Speaker Kevin McCarthy failed to reach an agreement on how to lift the US debt ceiling of $31.4 trillion. However, they both stressed the need to avoid default with a bipartisan deal and said they would continue the talks, leaving investors with the same risk aversion.
The Nasdaq’s growth was driven by Alphabet and Meta shares’ rise by 1.87% and 1.1% respectively.
Apple dropped by 0.55% yesterday after Loop Capital downgraded Apple stock’s rating to hold from buy. The rating was downgraded for the first time in the last 5 months.
Chip maker Micron Technology shares fell by 2.85% after Beijing banned the company from selling memory chips to the country’s key industries.
Pfizer shares rose by more than 5% after its diabetes drug trial resulted in weight loss similar to Novo Nordisk's Ozempic.
Chevron shares fell by 1.8% after announcing the acquisition of PDC Energy in a deal worth 7.6 billion dollars, including debt, putting pressure on the Dow.
Shares of regional banks appreciated on news that PacWest had agreed to sell a portfolio of 74 real estate loans. The bank's shares jumped by 19.5%.
JPMorgan lost 0.8% despite the company saying its net interest income will rise by 3 billion dollars due to an increase in interest payments from its purchase of bankrupt First Republic Bank this year.
Perhaps the reason for the pessimism was Jamie Dimon's warning that investors should be braced for the prospects of higher interest rates. "Five percent is not high enough for the Fed - I have advised this to clients and banks, you should be ready for six, seven."
The comments of the St. Louis Fed President also did not inspire optimism in the market. James Bullard said the Federal Reserve may need to raise its benchmark interest rate by another half a point this year.
Investors will be looking for monetary policy tips this week from remarks by other Fed speakers and key data such as the PCE price index for April and durable goods orders.
Today, stock investors are poised to play safe as long as Joe Biden and House Speaker Kevin McCarthy are engaged in the talks.
While concerns have emerged in bond markets, US stocks are trading quietly. The VIX index, known as Wall Street's fear gauge, is close to its lowest level since late 2021.
For now, investors believe the deal is on the horizon, even as the deadline approaches. A survey of global fund managers conducted by Bank of America last week showed 71% likelihood that the deal to raise the debt ceiling will be reached before the deadline.
However, some investors fear that current market and economic conditions could leave stocks more vulnerable than they were in 2011, when a debt ceiling standoff led to a historic downgrade of the US credit rating.
While stocks fell by nearly 20% in 2011, higher inflation and tighter monetary policy could mean the current fundamentals are worse for risky assets, according to JPMorgan strategists.
The Fed's most aggressive rate hike cycle in decades has left interest rates in the 5% to 5.25% range from near zero in 2011. Inflation stands at 4.9% compared to 3.6% in 2011.

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