25-5-2023 (New York) U.S. stocks experienced a continued decline on Wednesday amidst the ongoing deadlock over the debt ceiling, heightening fears of an impending U.S. default. The Dow Jones Industrial Average witnessed a drop of 255.59 points, or 0.77 percent, settling at 32,799.92. Similarly, the S&P 500 plunged 30.34 points, or 0.73 percent, reaching 4,115.24. The Nasdaq Composite Index also faced a decline of 76.08 points, or 0.61 percent, finishing at 12,484.16.
Of the 11 primary sectors within the S&P 500, ten experienced losses, with real estate and financials leading the downturn with declines of 2.21 percent and 1.31 percent, respectively. However, the energy sector defied the trend by witnessing a rise of 0.52 percent.
The decline in U.S. stocks on Wednesday follows the selloff observed on Tuesday, as lawmakers continue to struggle in reaching a compromise regarding the nation’s debt ceiling. House Speaker Kevin McCarthy stated on Wednesday that negotiators remained divided on spending caps, placing blame on his Democratic counterparts for the current deadlock. McCarthy expressed optimism, suggesting that both sides at the negotiating table could make progress and secure a deal to avoid default.
Kenny Fisher, a senior market analyst at OANDA, a provider of online multi-asset trading services, commented on the situation, stating, “Investors are worried, and stock markets are down while safe-haven assets are higher.” Fisher further added, “We’ve seen this movie before, and Congress has always reached a deal before the deadline.”
However, the failure to reach an agreement on the debt ceiling could have devastating consequences, according to Nouriel Roubini, chairman of Roubini Macro Associates, in an interview with Bloomberg on Wednesday. Roubini expressed concern, stating, “They may get to the last hour before there’s an agreement, or it’s possible they don’t reach an agreement. If that doesn’t happen, then the market is going to crash.”
On Wednesday, U.S. Treasury Secretary Janet Yellen issued a warning, stating that it is highly likely the Treasury will exhaust its resources by early June. Yellen also emphasized that even with a debt agreement in place, there may still be significant financial hardships, stating, “We are seeing just the beginnings of it.”
Investors closely analyzed the minutes of the Federal Reserve’s May meeting, which were released on Wednesday. The minutes revealed a division among policymakers regarding a potential interest rate hike in June, with some members believing additional increases were necessary, while others felt they may not be required.
Meanwhile, the latest minutes indicated that the decision to raise interest rates during the upcoming monetary policy meeting in June would ultimately depend on the available data. According to data from the CME FedWatch Tool, the Federal Open Market Committee has a probability of over 30 percent for a 25 basis points increase in federal fund rates in June.
