U.S. stocks close lower as debt ceiling deadline nears

Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York, the United States, on May 24, 2023. (Photo by Michael Nagle/Xinhua)

"We've seen this movie before, and Congress has always reached a deal before the deadline," says Kenny Fisher.

NEW YORK, May 24 (Xinhua) -- U.S. stocks extended losses on Wednesday as the debt ceiling deadlock continued, heightening worries of a catastrophic U.S. default.

The Dow Jones Industrial Average fell 255.59 points, or 0.77 percent, to 32,799.92. The S&P 500 sank 30.34 points, or 0.73 percent, to 4,115.24. The Nasdaq Composite Index shed 76.08 points, or 0.61 percent, to 12,484.16.

Ten of the 11 primary S&P 500 sectors ended in red, with real estate and financials leading the laggards by losing 2.21 percent and 1.31 percent, respectively. Energy bucked the trend by rising 0.52 percent.

The fall in U.S. stocks Wednesday extended Tuesday's selloff, as lawmakers struggled to reach a compromise on the nation's debt ceiling.

House Speaker Kevin McCarthy said Wednesday that negotiators remain at odds on spending caps, and blamed his Democratic counterparts for the current impasse.

McCarthy also said that he believes both sides at the negotiating table could make progress and get a deal to avert default.

Investors are worried, and stock markets are down while safe-haven assets are higher, said Kenny Fisher, senior market analyst at OANDA, a supplier of online multi-asset trading services.

"We've seen this movie before, and Congress has always reached a deal before the deadline," said Fisher.

A trader works on the trading floor of the New York Stock Exchange (NYSE) in New York, the United States, on May 24, 2023. (Photo by Michael Nagle/Xinhua)

Failure to reach a debt ceiling deal may have a devastating effect, said Nouriel Roubini, chairman of Roubini Macro Associates, in an interview with Bloomberg on Wednesday.

"They may get to the last hour before there's an agreement, or it's possible they don't reach an agreement. If that doesn't happen, then the market is going to crash," Roubini said.

U.S. Treasury Secretary Janet Yellen said Wednesday that it is almost certain the Treasury will run out of resources in early June. She also warned that there could be financial pain even with a debt agreement and "we are seeing just the beginnings of it."

Investors also paid close attention to the minutes of the Federal Reserve's May meeting released on Wednesday. The minutes showed policymakers were divided over whether the central bank should hike interest rate again in June, with some of them seeing the need for more increases while others expecting more hikes may not be needed.

Meanwhile, the latest minutes indicated that a decision to hike interest rates in the upcoming monetary policy meeting in June would ultimately be data dependent.

The Federal Open Market Committee has over 30 percent probability of raising federal fund rates by another 25 basis points in June, data from the CME FedWatch Tool indicated Wednesday afternoon.