Trading intensified tuesday as the U.S. house of Representatives grappled with averting a government shutdown hours before a midnight deadline, injecting volatility into markets already sensitive to rising interest rates and global economic uncertainty. The dow Jones Industrial Average closed down 336.33 points, or 0.98%, at 34,299.33, the S&P 500 fell 0.70% to 4,369.71 and the Nasdaq Composite dropped 0.60% to 13,533.05.
A shutdown would halt non-essential government services, possibly delaying economic data releases and impacting consumer confidence. While past shutdowns have had limited long-term economic impact, the current habitat – marked by inflation, geopolitical tensions, and a Federal Reserve determined to curb spending – amplifies the risk. Investors are particularly focused on the potential for a prolonged impasse, wich could further destabilize markets and complicate the Fed’s monetary policy decisions.
The immediate trigger is a disagreement over government funding levels, with hardline Republicans demanding deeper spending cuts than Democrats and President Biden are willing to accept. House Speaker Kevin McCarthy faces a challenge balancing the demands of his party’s conservative wing with the need to avoid a shutdown.A short-term continuing resolution, extending current funding levels, appeared to be the most likely path to avoid immediate disruption as of late Tuesday, but its passage remained uncertain.
Treasury yields rose, with the 10-year Treasury note hitting 4.58%, reflecting investor concerns about increased borrowing costs and potential inflationary pressures. Oil prices also edged higher, as a potential shutdown could disrupt energy markets.
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