ASX set to drop as markets fall on debt talks, inflation fears

Interest rates are so high because the Federal Reserve is raising rates at the fastest pace in decades, hoping to keep high inflation in check. High interest rates depress the entire economy and hurt the prices of stocks, bonds, and other investments. Even if Congress reaches a deal on the debt ceiling, that has many investors bracing for a recession.

Traders are hoping for another rate hike this summer, if any. Fed officials were divided earlier this month on whether to pause rate hikes at the upcoming June meeting, according to the minutes of their May 2-3 meeting.

Several companies reported better-than-expected results for the start of the year, helping limit losses on Wall Street.

Shares of Kohl’s rose 6.3% after the company reported a surprise profit in its most recent quarter, in part due to momentum at its Sephora beauty stores. Analysts had expected it to post losses.

Resilient spending by U.S. consumers has helped the economy out of recession even as manufacturing and other sectors grapple with higher interest rates. Economists at Goldman Sachs said they expect consumer spending to remain the engine of the economy this year as the job market remains solid.

Homebuilder Toll Brothers rose 1.5% after reporting its latest quarterly results that came in much better than analysts expected.

Most companies beat expectations in the first quarter of the year, but that was largely because the bar was set particularly low by analysts. S&P 500 companies remain on track to report below year-ago levels for the second quarter in a row.


That has Wall Street paying more attention to what companies think about future prospects than how they have performed over the past few months.

Shares of Agilent Technologies fell 6.9% even as the company reported profit and revenue for its latest quarter that topped analysts’ expectations. It cut its earnings and sales forecasts for the full fiscal year and said the market was becoming more challenging.

Shares of Analog Devices fell 8.2%, even though its latest quarterly profit and revenue also came in stronger than expected. Its earnings forecast for the current quarter was below analysts’ expectations.

Intuit was also in the red, down 7.3%. The company behind TurboTax reported lower-than-expected revenue in its most recent quarter.

In the bond market, the 10-year U.S. Treasury yield rose to 3.71% from 3.70% late Tuesday. It helps set interest rates on mortgages and other important loans.

The two-year yield, which is more influenced by expectations of Fed action, fell to 4.32% from 4.33%.

Associated Press

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