The main indices of Wall Street fell sharply this Tuesday, May 23, and short-term Treasury yields soared due to nervousness among investors over the lack of progress in negotiations between the government of Joe Biden and the Speaker of the United States House of Representatives, Republican kevin mccarthyto raise the debt ceiling and not fall into default.
S&P 500 plunged -1.1% to 4,145.58; Nasdaq tumbled -1.3% to 12,560.25; and the Dow Jones Industrials fell 0.7% to 33,055.51.
Representatives for Biden and congressional Republicans wrapped up another round of debt ceiling negotiations on Tuesday as the deadline for raising the government’s $31.4 trillion borrowing limit neared. or run the risk of falling into suspension of payments.
At the same time, Concerns over the debt limit pushed yields on one-month Treasury bills to a record high of 5.9%.
Investors are also awaiting the minutes of the Federal Reserve’s May 2-3 meeting, due to be released on Wednesday, to assess the central bank’s next move.
Meanwhile, regional Fed chairmen, James Bullard and Neel Kashkariindicated on Monday that the US central bank may have to continue raising rates if inflation remains high.
Michael Wilson, Equity Strategist at Morgan Stanley, said that a US debt default is not discounted in the market. Even if the two parties reach an agreement, it could have implications for economic growth.
“If they reach an agreement on the debt ceiling, there will be some concessions on fiscal spending. It is a problem for growth”Wilson said.
He added: “Will it be an immediate impact or later? We think there will be a bit of both. Ultimately, there is no positive trade-off.”
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