Stocks plunge as debt deadline nears

  • Stock breadth  deteriorates as equal versus cap-weighted S&P ratio falls to lowest levels since early 2022
  • Treasury cash balance rises to $68.3 billion on May 22nd
  • Risk appetite struggles as little progress made over raising debt ceiling

US stocks are declining as debt ceiling talks have hit a major roadblock and the latest round of economic data suggests the disinflation process is going to start to struggle.  What is also weighing on sentiment is the China-US confrontation which could put added stress in the chip space. 

Stocks plunged after Punchbowl News tweeted that “McCarthy says the two sides aren’t close to an agreement with just nine days left until default.”  The tweet also reminded us of the skepticism that some republicans have with Treasury Secretary Yellen’s X-date of June 1st

Not Close to a Debt Deal

In a closed-door meeting with House Republicans, Speaker McCarthy reportedly told Republicans that he and the White House are ‘nowhere close’ on the debt limit deal, but could ‘finish this by June 1st.’  US House Democrat leader Jeffries also noted that not a lot of progress toward a resolution on the debt limit has been made.  Talks were always going to go down to the wire and an 11th hour deal is still expected to be made. 

What could be making some investors nervous is that some House Republicans might not be convinced that the X-date of June 1st is accurate or that a default would be the end of the world. If the actual X-date ends up being closer to June 7th, that means we could see market stress build up leading to that point. 

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023.

His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies.

Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with, where he provided market analysis on economic data and corporate news.

Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal.

Ed holds a BA in Economics from Rutgers University.