Stocks suffered their biggest sell-off in three weeks on Tuesday, and S&P 500 futures on Wednesday morning point to further losses. Citing the deadlocked talks, analysts at JPMorgan Chase suggested that investors dump stocks for cash.
In a further sign of uncertainty, investors are offering more for Microsoft corporate bonds that come due in August than they are for Treasury bills that mature in the same period, a sign they see the government debt as more risky.
Markets are increasingly worried a timely deal might be out of reach. Beyond the current impasse, investors have been worried that Speaker Kevin McCarthy may not be able to win over significant portions of his fellow House Republicans, and he has only a slim majority.
Meanwhile, the three major credit rating agencies would be compelled to downgrade America’s debt if the government missed even a single repayment, The Times’s Joe Rennison reports. Even the prospect of reaching the X-date with no deal could be enough for Moody’s to review its outlook, said William Foster, the agency’s lead U.S. analyst.
Any downgrade would kick the U.S. out of an exclusive club of 12 nations with the highest credit rating, which includes Canada, Germany and Singapore.