Global markets witnessed a sharp decline on Tuesday as Wall Street stocks closed significantly lower due to growing concerns over the impasse in U.S. debt limit negotiations. Talks between representatives of President Joe Biden and congressional Republicans failed to make progress as the deadline to raise the government's borrowing limit of $31.4 trillion drew nearer, increasing the risk of a potential default.
The looming debt limit crisis sparked anxiety among investors, leading to a surge in yields on one-month Treasury bills, reaching record highs at 5.888%. Alongside the debt ceiling uncertainty, market participants eagerly awaited the release of minutes from the Federal Reserve's May meeting to gain insights into the central bank's future interest rate plans.
Morgan Stanley's equity strategist, Michael Wilson, highlighted that the market has not priced in the possibility of a U.S. debt default. Even if an agreement is reached, concerns remain regarding its potential impact on economic growth. Wilson stated, "If they come to an agreement on the debt ceiling, there will be some concessions on the fiscal spending. It's an issue for growth. At the end of the day, there's no positive tradeoff."
The S&P 500 index declined by 1.12% to close at 4,145.58 points, while the Nasdaq Composite fell by 1.26% to 12,560.25 points. The Dow Jones Industrial Average also slid by 0.69% to 33,055.51 points. Despite the losses, the S&P Global data showed a positive sign of recovery, with U.S. business activity reaching a 13-month high in May, primarily driven by robust growth in the services sector.
The uncertainty surrounding the debt ceiling negotiations and its potential repercussions on the economy continue to weigh on market sentiment. As the impasse persists, investors closely monitor developments and prepare for potential impacts on the financial landscape.
