Stock market indices are in the red across the board today on news that debt ceiling negotiations aren’t coming along as smoothly as previously assumed. Why are stocks down today?
Well, investors are continuing to express fear over the rapidly approaching debt ceiling deadline. This morning, Rep. Garret Graves, one of House Speaker Kevin McCarthy’s top debt ceiling negotiators, made a statement suggesting talks with the White House have soured.
“It’s time to press pause because it’s just not productive,” Graves said to reporters after a meeting between House Republicans and President Joe Biden’s administration. According to Graves, negotiations have turned “just unreasonable,” leaving it uncertain when the two parties will meet again.
This is a notable reversal from the debt ceiling optimism that flooded equity markets earlier this week following a seemingly productive meeting between McCarthy and Biden. Indeed, after more than a week of delays, markets surged following a positive discussion between the two on Tuesday.
Why else are stocks down today?
Why Are Stocks Down Today?
According to Eric Kuby, Chief Investment Officer at North Star Investment Management, the nature of today’s stock slump may show that things aren’t quite as bleak as the headlines suggest. Kuby told InvestorPlace:
“The market’s relatively shallow selloff in response to the suspension of debt ceiling conversations suggests investors believe these actions are more theater than a substantive threat to catastrophic default.”
Reasonably so, the S&P 500, Dow 30 and Nasdaq Composite are each only down less than half a percent this afternoon.
It seems lawmakers may be forced into yet another last-minute negotiation ahead of “X-date,” the day the Treasury exhausts its extraordinary measures cash balance, effectively resulting in a U.S. debt default.
The U.S. has never defaulted before, so it’s unclear exactly just how impactful the repercussions would be. Still, everyone from economists to analysts to government officials agree: A U.S. default would be devastating.
At the very least, a default would result in the country’s credit rating being downgraded, which would heavily inflate the cost to borrow in the States. That would hurt industries and individuals nearly across the board.
Treasury Secretary Janet Yellen estimates the country may only have until June 1 before it is forced to default on its debts. Although it’s not exactly uncommon for legislators to come to an agreement at the last minute, the current polarized state of Congress certainly has some concerned over the country’s path forward.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
