NEW YORK: Wall Street stocks retreated on Wednesday (May 31) as markets awaited a key congressional vote to lift the US debt limit, while data pointed to weakening Chinese manufacturing activity.

Investors are hopeful that the United States can avert a debt default following the passage of a compromise package late Tuesday in a key House committee, a development expected to foreshadow full House approval on Wednesday evening.

“Optimism about the US avoiding a catastrophic default on debt is growing following the House Rules Committee approving a bill based on a debt-ceiling compromise spearheaded by President Joe Biden and House Speaker Kevin McCarthy,” said Jose Torres, senior economist at Interactive Brokers.

The Dow Jones Industrial Average fell 134.51 points, or 0.41%, to 32,908.27; the S&P 500 lost 25.69 points, or 0.61%, at 4,179.83; and the Nasdaq Composite dropped 82.14 points, or 0.63%, to 12,935.29.

For the month, the S&P 500 rose 0.26%, the Dow lost 0.3.48% and the Nasdaq gained 5.80%.

“The bond market liked that there was some fiscal discipline and the equity market liked that it’s not going to hurt growth,” said Brad Conger, deputy chief investment officer at Hirtle Callaghan & Co in Conshohocken, Pennsylvania.

“I don’t think we could have asked for a better outcome.”

However, equity valuations are stretched considering interest rates are high, the economy is slowing and inflation needs to decline further, Conger said.

“Quite frankly, if we’re really slowing down, the market is not offering a free lunch,” he said. “It’s going to be a struggle if inflation is not perceived to be ebbing, which is where we are.”

China’s manufacturing activity shrank in May for the second successive month, official figures showed, the latest sign that the country’s economic recovery is losing steam.

Meanwhile fresh US data on the lofty amount of job openings added to concerns the Federal Reserve will continue to lift interest rates in June.

Those worries were countered by comments from two senior Fed officials to skip an increase at the next meeting.

“I am in the camp increasingly coming into this meeting thinking that we really should skip not pause -– I don’t like the word ‘pause’ – but skip an increase,” said Philadelphia Fed president Patrick Harker.

Among individual companies, Intel shot up 4.8% after the company’s chief financial officer said revenues were on track to reach the higher end of the company's previously discussed range.

Hewlett Packard Enterprise Co slipped 7.1% after missing Wall Street estimates for second-quarter revenue.

Nvidia Corp's shares fell 5.7% a day after hitting a record high that briefly boosted its market value above US$1 trillion on Tuesday, fuelled by bets on the AI boom.

American Airlines rose 1.1% after it lifted key financial targets pointing to “continued strength in the demand environment”. – AFP, Reuters