NEW YORK — Wall Street rose along with hopes that the U.S. government can avoid a default on its debt. The S&P 500 rose 1.2% Wednesday. The Dow added 408 points, also 1.2%. Much of the gain came after President Joe Biden said he’s confident of reaching a deal with Republicans. Washington faces a June 1 deadline when the U.S. government could run out of cash. Also boosting confidence was Target, which reported stronger profit than expected. That eased worries about the financial strength of U.S. households. Several beaten-down banks also rose to recover some of their big losses from earlier in the year.
The S&P 500 was 0.7% higher in afternoon trading, on pace for a seventh straight week where it moves by less than 1%. That would be its longest such streak since 2018. The Dow Jones Industrial Average was up 274 points, or 0.8%, at 33,293, as of 12:37 p.m. Eastern time, while the Nasdaq composite was 0.7% higher.
Markets got some lift from hopes that the U.S. government may avoid a first-ever default on its debt. House Speaker Kevin McCarthy said late Tuesday that Democrats and Republicans could reach a deal by the end of the week, though the two sides remain far apart.
They’re staring down a June 1 deadline, which is when the U.S. government could default on its debt unless Congress allows it to borrow more. A default could rock the financial system because Treasurys are seen as the safest possible investment on Earth, and economists say it would likely cause widespread damage across the economy.
Stocks of companies that get much of their revenue from the federal government, and thus may have much to lose if it can’t pay its bills, were ticking a bit higher. Lockheed Martin rose 1.9%, and Northrop Grumman gained 2.6%.
The debt negotiations are just one of the issues hanging over Wall Street. Worries are also high about a possible recession hitting later this year because of much higher interest rates meant to get painful inflation under control.
One of the main positives that’s kept the economy out of a recession so far has been resilient spending by U.S. households. They’ve continued to spend even as manufacturing, the U.S. banking system and other parts of the economy have cracked under the pressure of high rates.
Target offered some potentially encouraging data on the strength of shoppers when it said its profit fell by less last quarter than analysts feared. But it also said that it’s seeing softening sales trends early this year, and it did not raise its forecast for full-year earnings. Its stock rallied 2%.
A day earlier, Home Depot raised worries when it cut its financial forecasts for the year after highlighting broad-based pressures across its business. Walmart is the next big retailer to report its results, and it’s coming up on Thursday.
Retailers are among the last of big U.S. companies to report their profits for the start of the year. Most companies in the S&P 500 have turned in earnings that were better than analysts feared. But they’re still on pace to finish with a second straight quarter of drops in profit from year-ago levels.
Besides the “profit recession” underway, pressures in the U.S. banking industry have also raised worries on Wall Street. Investors have been hunting for the next possible weak link following three high-profile failures since March.
Banks are struggling with high interest rates, which have caused some customers to pull their deposits in search of higher yields at money-market funds and other accounts. The charge higher in interest rates over the last year has also knocked down the values of many of the loans and bonds that banks own.
Much scrutiny has been on Western Alliance Bancorp and other smaller and mid-sized banks, which has led to wild swings in their stock prices. Western Alliance recovered some of its losses after it gave an update on its deposit levels through May 12, among other data. It jumped 12.7% Wednesday, though it’s still down about 40% for the year so far.
PacWest Bancorp, another bank under heavy scrutiny, rose 16.9% to trim its loss for the year to about 77%.
In the bond market, Treasury yields were ticking higher. The yield on the 10-year Treasury rose to 3.57% from 3.54% late Tuesday. It helps set rates for mortgages and other important loans.
The two-year yield, which moves more on expectations for action by the Federal Reserve, rose to 4.15% from 4.08%.
In markets abroad, Japan’s Nikkei 225 gained 0.8% after data showed the world's third-largest economy grew at its strongest pace since April-June 2022.
Stock indexes fell 2.1% in Hong Kong and were mixed amid modest movements in Europe.