US credit rating in question

U.S. House Speaker Kevin McCarthy (R-CA) speaks to members of the media at the U.S. Capitol in Washington, DC, May 24, 2023.

Kevin Deitch | Getty Images News | Getty Images

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Stocks extended losses as the collapse of the debt ceiling continued to worry investors.

what you need to know today

  • Negotiations on the US debt ceiling are “get along with,” House Speaker Kevin McCarthy said after discussions at the White House yesterday. But Rep. Steve Scalise told members they didn’t need to stay in Washington over the weekend to vote on the deal, suggesting negotiations would continue into next week.
  • US market Closed lower on Wednesday, the Dow Jones Industrial Average fell for a fourth straight day as debt-limit talks remained inconclusive.european stocks also traded lower. UK headline inflation rate From 10.1% to 8.7%, but this figure is still higher than expected. In response, the country’s FTSE 100 fell 1.75%.
  • Although Fed officials agree that rate hike this monththey are Not sure where rates should be in June, their May meeting minutes were disclosed. “Some” members wanted further rate hikes to fight inflation, but “some” advocated for a pause in rate hikes due to slowing economic growth. (In Fed speeches, “some” is seen as more than “several.”)
  • Professional Edition Summer vacations are fast approaching in the U.S. — and that means peak travel season is about to kick off. CNBC screens leisure and entertainment stocks to find out which ones have Upside potential of at least 10%And is recommended by about 60% of analysts.

the bottom line

Stocks extended losses as the collapse of the debt ceiling continued to worry investors.

The S&P 500 fell 0.73%, the Dow lost 0.77% and the Nasdaq Composite fell 0.61%.

Meanwhile, the Cboe Volatility Index (VIX), which measures investors’ expectations for S&P price swings within a 30-day period, breached the 20 mark. While the figure was the highest since May 4, indicating increased fear and uncertainty in the market, it was still not as high as during the banking turmoil in March. As a result, investors are spooked but still hopeful that U.S. lawmakers can still reach a deal.

But with a full week until June 1 — when Treasury Secretary Janet Yellen warns that the White House may run out of money to repay the debt — time is running out.

There have been consequences. Fitch just put the US’s AAA credit rating on negative watch. Short-term government bond yields have soared recently and approached the 6% mark. Short-dated bond prices, which move inversely with yields, could fall even more if the U.S. defaults and is downgraded. (Side note: Long-term Treasury bonds tend to rise in price during crises because investors still view them as safe assets.)

Dow futures slipped on the credit rating news, but Nasdaq 100 futures rose on Nvidia’s upbeat forecast. CNBC’s Robert Hum and Sarah Min noted that the semiconductor company added $220 billion to its market cap in the extended deal — the equivalent of Advanced Micro Devices’ entire market cap. But they also warned investors that Nvidia’s overnight gains could become a mirage like computer-generated graphics and disappear in regular trading.

(If only that were the case with the debt limit issue.)

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