Retail-sales data released before the market opened showed Americans modestly increased their spending in April. But consumers are holding off on big purchases and spending more on experiences. The shift among consumers hit
Home Depot,
which reported a decline in first-quarter sales on Tuesday.

The home-improvement company cut its forecasts for the year, sending shares 2.2% lower on the day and building year-to-date losses to 11%. While Home Depot’s murky outlook weighed on overall market sentiment, the S&P 500’s two most dominant sectors this year—communication services and tech—finished the day in the green.

Shares of Google-parent Alphabet rose 2.7% on Tuesday, lifting the Nasdaq. A securities filing late Monday showed billionaire

Bill Ackman’s
hedge fund, Pershing Square Capital Management, built a billion-dollar stake in the tech company during the first quarter.

The wide gap between stocks that are doing well—namely shares of technology or tech-oriented companies—and the broader market makes it hard to envision a sustained market rally, according to

Terry Sandven,
chief equity strategist at U.S. Bank Wealth Management.

“Ultimately we’re in an environment of persistent inflation, elevated interest rates and earnings being reset lower,” said Mr. Sandven.

“Typically, that’s not a good environment for equities,” he added.

Wall Street is looking ahead to earnings from more big-box retailers to get a gauge of Americans’ spending habits, with Target and
Walmart

both set to report results later this week.

Meanwhile, warnings around the debt ceiling grew louder, further adding pressure to stocks. Treasury Secretary

Janet Yellen
has said that the U.S. could become unable to pay its bills as soon as June 1 if Congress doesn’t first raise the federal borrowing limit. She doubled down on the severity of a potential debt-ceiling mishap in Tuesday remarks to community bankers.

Congressional recesses are approaching, potentially leading to both chambers being unavailable for negotiations at various points in late May.

“Don’t let a congressional calendar scare you that things can’t get done,” Jason Pride, chief of investment strategy and research at Glenmede, an investment management company. 

Mr. Pride said that if the deadline approaches, Congress can call additional sessions or pass a last minute suspension, like it did in 2011. Even if the base assumption is for a deal to get done, he said he expects market volatility to rise as we approach early June. 

Furthermore, in the event of a clean debt-ceiling increase, a deal which hampers fiscal spending could drag on growth, thus crimping corporate profits and weighing on stocks.

The debt ceiling also has rattled the market for short-term U.S. government debt. Many investors are seeking to avoid Treasury bills that mature around early June, when the Treasury could be unable to make some payments. Others are taking advantage of the higher rates on those securities, expecting the government to get a deal done.

Prices for Treasurys fell following the retail-sales print, pushing yields higher. The yield on the 10-year Treasury rose to 3.548%, from 3.506% late Monday. The two-year yield, which is particularly sensitive to monetary policy expectations, finished at 4.072% from 4.004%.

Overseas markets were broadly lower. The Stoxx Europe 600 slipped 0.4% and the Shanghai Composite lost 0.6%. Japan was an outlier—the Nikkei 225 rose 0.7% and the Tokyo Stock Exchange’s Topix index hit its highest level since 1990.

Write to Eric Wallerstein at [email protected]