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 1^st. 

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 1^st.’  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 11^th 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 1^st is accurate or that a default would be the end of the world. If the actual X-date ends up being closer to June 7^th, that means we could see market stress build up leading to that point. 

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