The stock market fell on Tuesday as investors fret over the debt ceiling impasse and remained wary ahead of Wednesday's inflation data.

New York Fed President John C. Williams predicted the unemployment rate could increase to 4%-4.5% this year, while inflation could decline to 3.25% in 2023 and then to 2% by 2025. Williams emphasized that he doesn't expect to cut rates this year. 

Cues From Tuesday's Trading

All the major averages fell on Tuesday, with the S&P 500 index, the Nasdaq 100 and the Russell 2000 dropping 0.5% each on the day, while the Dow Jones Industrial Average eased 0.2%. 

U.S. Indices’ Performance Wednesday

Analyst Color:

As the debt ceiling impasse continues, investors may be well advised to be selective in their investment strategy, said Adam Turnquist, chief technical strategist at LPL Financial.

"While we view a default as a very low probability event, headline risk over the next few weeks could weigh on risk sentiment," the analyst said.

"In the event of a prolonged debt ceiling battle similar to 2011, watch for large caps to outperform small caps, growth to outperform value, and defensive sectors to outperform more cyclical sectors," he added.

All the S&P 500 sectors were negative, except for the Industrials Select Sector SPDR Fund (NYSE:XLI), slightly up by a shy 0.1%. 

The Materials Select Sector SPDR Fund (NYSE:XLB) was the weakest performer, down 0.9%, followed by the Technology Select Sector SPDR Fund (NYSE:XLK), down 0.7%. 

Latest Economic Data:

Fed Governor Philip Jefferson said that inflation has started to ease while the economy is slowing down in an orderly fashion, remarking that the banking system is sound and resilient. 

The IBD/TIPP economic optimism survey for May came in at 41.6 points, below the 47.4 in April and the 48.2 expected. 

In its most recent short-term energy outlook report, the EIA reduced its 2023 Brent price projection by 7.5%, from $85 to $79, and its 2024 projection by 8.3%, from $81 to $74.

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Stocks In Focus:

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 0.6%, with a barrel of WTI grade crude falling to $72.45. The United States Oil Fund ETF (NYSE:USO) was 0.3% lower to $64.08 per share.  

Treasury yields rose, with the 10-year yield edging 2 basis points up to 3.53% and the two-year yield rising 6 basis points to 4.06%. The iShares 20+ Year Treasury Bond ETF (NYSE:TLT) was 0.3% lower on the day. 

The dollar strengthened, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP), up 0.3%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust (NYSE:FXE), fell 0.44% to 1.0955. 

Staff writer Piero Cingari updated this report midday Tuesday. 

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