News

Published: May 17, 2023
Updated: May 17, 2023

Debt-Ceiling Concerns Trigger Market Volatility in the US; impact markets worldwide

The US financial markets experienced a significant downturn during the final 30 minutes of trading, fueled by growing concerns over the government's ability to address the impending debt-ceiling issue and avoid an unprecedented default.

Debt-Ceiling Impasse Raises Alarm Bells

As the US government grapples with the debt-ceiling issue, worries about a potential historic default loom large. Negotiations between House Speaker Kevin McCarthy and President Joe Biden have indicated a considerable gap between the parties involved. However, despite the challenging situation, there remains a glimmer of hope for a potential agreement.

Market Performance

During the tumultuous trading session, the Dow Jones Industrial Average experienced a 1% decline, while the S&P 500 index recorded a 0.6% drop. The S&P 500 witnessed a notable decline just before the market closed, settling at its lowest levels. In contrast, the Nasdaq was buoyed by strong performances from prominent tech companies. Alphabet's shares surged by 2.6%, and Amazon observed a 2% increase.

Investor Sentiment and Economic Outlook:

A recent survey conducted by Bank of America revealed a deteriorating sentiment among investors in May. Concerns regarding a potential recession and credit risks prompted investors to withdraw cash from the market. The survey also highlighted an increase in cash levels, rising to 5.6%, the highest since March 2009. Furthermore, investors displayed a greater inclination towards bond allocation.

Federal Reserve's Stance on Financial Stability and Inflation:

Notwithstanding the ongoing financial instability concerns, Richmond Fed official Barkin emphasized that the Federal Reserve should not shy away from raising interest rates. On the other hand, Cleveland Fed official Mester suggested that the Fed has yet to reach a conclusive stance, and they are awaiting further evidence of inflationary pressures subsiding.

Retail Sales and Corporate Performance:

In April, US retail sales experienced a modest recovery, rising by 0.4% month-on-month. Although this marked a rebound after two consecutive months of decline, the increase fell short of market expectations of 0.8%. Home Depot, a leading home improvement retailer, revised its full-year guidance, anticipating a decline of 2-5% in comparable sales.

Sea's Stock Plunge and Cost-Cutting Measures:

Sea, Southeast Asia's largest internet company based in Singapore, witnessed an 18% decline in its stock price during New York trading. The decline followed disappointing earnings results, with gaming revenue plummeting by 43%. Additionally, the company incurred a significant one-time charge exceeding $10 Cr. In response to years of losses, Sea has embarked on an aggressive cost-cutting initiative, which includes job cuts, salary freezes, and substantial reductions in sales and marketing expenses.

The concerns surrounding the debt-ceiling issue and the potential for a historic default have triggered a wave of market volatility in the US. As negotiations continue between political leaders, the financial landscape remains uncertain. Investors have shown increased caution, withdrawing cash and favouring bonds. The Federal Reserve faces the challenge of balancing financial stability concerns with potential interest rate hikes. Meanwhile, retail sales have displayed mixed results, and companies like Home Depot and Sea confront challenges in their respective sectors.