To The Moon

The US debt ceiling is the legal limit on how much the federal government can borrow to pay its existing obligations, such as Social Security benefits, military salaries, and interest on the national debt¹. If the debt ceiling is not raised by Congress and the President before the Treasury runs out of cash, the US could default on its debt obligations, which would have severe consequences for the economy and the financial markets².

The impact of the debt ceiling on the market depends on several factors, such as the likelihood of a default, the duration of the impasse, the size of the spending cuts, and the market expectations¹. In general, a prolonged debt ceiling standoff could increase market volatility, raise borrowing costs, lower consumer and business confidence, and reduce economic growth²³.

However, the market may also react positively to a debt ceiling deal if it removes uncertainty and averts a default. For example, after President Biden and House Republican leader Kevin McCarthy reached a tentative deal to raise the debt ceiling by $31.4 trillion for two years on May 27, 2023, the S&P 500 index rose by 1.3% on May 28, 2023⁴⁵. The deal still needs to pass both chambers of Congress and be signed by the President before June 7, 2023, when the Treasury is expected to exhaust its extraordinary measures to avoid a default⁵.

Therefore, the US debt ceiling could affect the market in different ways depending on how the situation unfolds. Investors should monitor the developments closely and be prepared for potential swings in market sentiment and prices.

Source: Conversation with Bing, 01/06/2023

(1) Does the US reaching its debt ceiling impact stock markets?. https://www.squire.com/resources/blog/us-reaching-debt-ceiling-impact-stock-markets/.

(2) Anti-poverty groups and progressives blast work requirements for aid to poor Americans in debt ceiling deal. https://www.independent.co.uk/news/world/americas/us-politics/snap-debt-ceiling-work-requirements-b2349071.html.

(3) Oil falls further as weak China data offsets US debt ceiling progress. https://www.channelnewsasia.com/business/oil-falls-further-weak-china-data-offsets-us-debt-ceiling-progress-3526976.

(4) What is the US debt ceiling deal and how is it affecting oil prices?. https://www.livemint.com/market/commodities/what-is-the-us-debt-ceiling-deal-and-how-is-it-affecting-oil-prices-11685467153860.html.

(5) Don't expect the stock markets to rejoice about the debt ceiling deal .... https://www.cnn.com/2023/05/28/investing/debt-ceiling-deal-stock-market/index.html.

(6) Investors react to tentative US debt ceiling deal | Reuters. https://www.reuters.com/markets/us/analyst-view-investors-react-tentative-us-debt-ceiling-deal-2023-05-28/.