White House and Republicans Struggle to Find Compromise and U.S. Debt Rating On Negative Watch List

Barry Adams
25 May, 2023
New York City

U.S. debt ceiling talks weighed on market averages and stocks turned lower after one of the leading three rating agencies belatedly placed the U.S. debt on a negative watch list. 

Major averages declined after Fitch Ratings placed the U.S. long term debt rating AAA on a watch list with downward outlook. 

The rating agency cited ongoing lack of agreement among lawmakers to raise the U.S. federal government debt  in time increases the risk that the government may miss some payments. 

The rating agency was quick to note that it anticipates an agreement before the so-called X-date anytime after June 1 when the government is expected to run out of cash. 

S&P Global lowered its debt rating of the U.S. government debt in 2011 to AA+ from AAA after the previous protracted debt ceiling negotiations in 2011, and left it unrevised since then.  

Investors rely on the so-called independent rating as one of the metrics in assessing risk profiles of governments and corporations. 

Lower debt rating translates to higher interest rate, meaning higher cost of borrowing. 

 

US First Quarter GDP Revised Higher 

U.S. GDP in the first quarter was revised higher to 1.3% in the first quarter, from the first estimate of 1.1%, the Bureau of Economic Analysis reported Thursday. 

Despite the upward revision, economic growth in the first quarter is the weakest since the second quarter 2022. 

Consumer spending accelerated in the first quarter to 3.8% from the previous estimate of 3.7% and private inventory estimate subtracted 2.1 percentage points, less than 2.3 percentage point estimated in the first estimate. 

Net external demand contributed positively to the latest  GDP revision after exports rose at a faster pace than imports. 

Nonresidential fixed investment was revised upward to 1.4% from 0.7% and public spending to 5.2% from 4.7% in the first estimate respectively. 

However, residential fixed investment shrank at the faster pace of 5.4% from 4.2% in the first estimate. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,136.41 and the Nasdaq Composite rose 1.4% to 12,654.75. 

The yield on 2-year Treasury notes increased to 4.47%, 10-year Treasury notes edged up to 3.76% and 30-year Treasury bonds held at 3.98%. 

Crude oil rose $1.51 to $72.83 a barrel and natural gas prices rose 2 cents to $2.39 a thermal unit. 

 

U.S. Stock Movers 

Nvidia Corporation soared 23.5% to $375.16 after the advanced chip maker reported better-than-expected quarterly sales and earnings. 

The company also lifted its annual outlook on the back of demand for its AI chip. 

Other semiconductor stocks traded higher after results from Nvidia boosted the prospects for the sector. 

Taiwan Semiconductor Manufacturing Company Ltd increased 8.7% to $97.94 and Advanced Micro Devices, Inc gained 7.8% to $116.48.  

Best Buy Company Inc jumped 1.9% to $70.49 after the electronics retailer reported slightly better-than-expected adjusted earnings in its latest quarter. 

American Eagle Outfitters Inc dropped 16.4% to $10.30 after the specialty apparel retailer estimated second quarter revenue to decline on tough comparison.