US Government Faces Significant Risk of Defaulting in June

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US Government Faces Significant Risk of Defaulting in June

US Government at significant risk of defaulting in June due to weak tax collections.

Stock market on high alert as debt limit deadline looms.

Weak Tax Collections May Accelerate Debt Limit Deadline

The stock market is on high alert as new projections suggest the U.S. government may default on its debt in June. Analysts from Goldman Sachs Economic Research have warned that weak tax collections so far in April could result in the debt limit deadline being reached in the first half of June. Similarly, Wrightson ICAP analysts are not ruling out the possibility of a June default if tax data remains soft. This development poses a significant risk to the stock market, as the government’s inability to pay its bills could cause market turmoil and even a recession.

Read More: IMF Managing Director Warns of Impending Global Economic Downturn

Debt Ceiling Crisis Continues to Loom

The ongoing debt ceiling crisis has put the stock market on edge, with investors closely monitoring tax season for clues about how the situation will play out in the coming weeks and months. Without a deal in Congress, the government is set to be unable to pay its bills, which could have cascading effects that would almost certainly rattle markets and tip the economy into a recession.

The Treasury Department is currently using “extraordinary measures” to stave off an actual default, but for only a limited time. Analysts are closely watching tax receipts, especially in capital gains, to gauge whether the government will be able to stay afloat until mid-June, when additional tax receipts are due. If tax data remains soft, the government could default on its debt in June, significantly affecting the stock market.

Goldman Sachs Projections on Debt Limit Deadline

Goldman Sachs Economic Research has projected that the debt limit deadline could be reached in the first half of June, given the weak tax collections so far in April. While experts are expecting more clarity by early May, uncertainty is increasing, and the odds are increasing that Congress will need to reach a deal within weeks. Goldman Sachs notes that there remains a strong chance that the government stays afloat until later in the summer. However, either way, the stock market is bracing for the worst as the government’s inability to pay its bills could cause market turmoil and even a recession.

Wrightson ICAP’s Estimate on Remaining Fiscal Resources

Wrightson ICAP currently forecasts that the Treasury’s remaining fiscal resources would run below $100 billion from June 6 to June 13. This estimate further underscores the possibility of a June default and the significant risk it poses to the stock market.

Impact on Capital Gains

The remainder of the April tax receipts, especially in capital gains, will have a significant impact on whether the government can stay afloat until mid-June. 

Goldman Sachs has projected that a decline of 35% to 40% “would be consistent with an early June deadline.”

Receipts are down 39% from last year, suggesting that the government’s financial position is precarious.

Stalemate in Congress

Meanwhile, talks in Congress have stalled, with House Speaker Kevin McCarthy warning Wall Street of the growing chance that lawmakers “will bumble into the first default in our nation’s history.” Republicans are blaming the White House for the stalemate, while Biden officials have shot back that Congress needs to pass a simple increase in the debt ceiling, and McCarthy is making demands that even Republicans cannot agree on.

The Stock Market Braces for a Possible June Default

Impending June Default Looms Over Stock Market Amidst Debt Ceiling Crisis

The stock market is on high alert as the U.S. government faces a significant risk of defaulting on its debt in June. The ongoing debt ceiling crisis and weak tax collections so far in April have put the government’s financial position in a precarious state. While there remains a strong chance that the government stays afloat until later in the summer, the odds are increasing that Congress will need to reach a deal within weeks.

Analysts project Treasury to run below $100B in June amid risk of government default

Goldman Sachs and Wrightson ICAP analysts have warned of the potential for a June default, with the latter projecting that the Treasury’s remaining fiscal resources would run below $100 billion from June 6 to June 13. The impact of capital gains on tax receipts will play a significant role in whether the government can stay afloat until mid-June, and current projections suggest that the government’s financial position is precarious.

Congressional Stalemate Adds to Uncertainty as Stock Market Braces for Potential Recession

The stalemate in Congress is adding to the uncertainty, with talks having stalled and both parties blaming each other for the lack of progress. House Speaker Kevin McCarthy has warned of the growing chance of a default, while Biden officials have called for a simple increase in the debt ceiling. The stock market is bracing for the worst as the government’s inability to pay its bills could cause market turmoil and even a recession.

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Stephen Fruchs

Stephen Fruchs is a finance contributor on the Trade Oracle platform. His experience is extensive in everything from micro to macroeconomic trends. With a decade of experience in the finance space, Stephen Fruchs provides consistent economic insights into the changing stock market landscape.