Traders became reluctant to invest in risky assets after Fed Chairman Jerome Powell and US Treasury Secretary Janet Yellen warned that a US default over a failure to raise the debt ceiling would be disastrous.
Additionally, the remarks of Senator Elizabeth Warren shook the stock market, as she called Fed Chairman Jerome Powell "a dangerous man" on Tuesday and vowed to oppose his renomination.
Meanwhile, House advocates are lining up to challenge Speaker Nancy Pelosi and oppose a bipartisan infrastructure bill, potentially jeopardizing President Joe Biden's economic agenda.
Going back, Democratic leaders are debating how to raise the debt ceiling after Yellen said her department would run out of money around October 18 unless the Congress pauses or increases the limit. This is earlier than what Wall Street analysts are projecting, which heightened market concerns, especially since there is a stalemate between Republicans and Democrats over a resolution.
Brian Price, head of investment management at Commonwealth Financial Network, said: "we would expect a deal to get done, but it appears as though both sides are a bit more entrenched compared to previous periods. "
The S&P 500 extended its September sell-off due to losses from tech companies. The trading volume was about 30% above the last month's average.
With regards to macro statistics, US reported that consumer confidence fell for the third straight month, reflecting concerns over the spread of the delta strain and growing prices that continue to dampen sentiment. Home prices rose 19.7%, the biggest jump in more than 30 years.
Other important events to watch out for are:
- election of Japan's ruling party over its new leader (Wednesday);
- statements from Andrew Bailey (Bank of England), Haruhiko Kuroda (Bank of Japan), Christine Lagarde (ECB) and Jerome Powell (FRS) at the ECB forum (Wednesday);
- House Financial Services Committee hearing on coronavirus pandemic relief funding (Thursday);
- PMI data from China (Thursday);
- report on sentiment, output, construction costs, expenses and personal income in the US (Friday).