Market Close: Stocks Stumble as Investors Wait for Congress to Act

Wall Street Premarket
AP, Richard Drew
By STEVE ROTHWELL

NEW YORK -- Stocks ground lower Tuesday as budget gridlock in Washington brought the U.S. closer to an unprecedented default on its debt.

The Dow Jones industrial average (^DJI) fell 159 points, or 1.1 percent, to 14,776.53. The Nasdaq composite (^IXIC) dropped 75 points, or 2 percent, to 3,694.83., its largest drop in six weeks. And the S&P 500 (^GPSC) index dropped 20 points, or 1.2 percent, to 1,655.45 -- its 11th loss in the last 14 days, and the index's biggest drop in six weeks.

After opening relatively flat, the stock market moved steadily lower in late morning trading. Nervous investors dumped short-term government debt as they worried that the standoff in Washington could jeopardize the nation's ability to pay its bills, including interest on its debt, as early as next week if Congress doesn't raise the nation's borrowing limit.

House Republicans have insisted that a temporary funding bill contain concessions on President Barack Obama's health care law. The president wants a bill to simply reopen the government, without strings attached.

Stocks stayed lower in the afternoon after Obama said he had told House Speaker John Boehner he's willing to negotiate with Republicans on their priorities, but not under the threat of "economic chaos." Speaking at a press briefing in Washington, the president warned that the U.S. risked a "very deep recession" if the debt ceiling wasn't raised.

"Unfortunately, we're just held hostage by what's going on in Washington," said Dan Veru, Chief Investment Officer of Palisade Capital Management.

Concerns about the budget impasse have pushed stocks from record levels reached in September. The declines have been small, but steady. The S&P 500 has dropped on 11 out of the past 14 days and has lost 3.8 percent since closing at an all-time high of 1,725 points on Sept. 18.

Stock market volatility will likely increase the closer the U.S. gets to the debt deadline without resolution, said Randy Frederick, Managing Director of Active Trading and Derivatives at the Schwab Center for Financial Research.

"Virtually everyone expects that there will some sort of a resolution," said Frederick. "But I wouldn't be surprised if it only came right before the last minute."

The VIX index, which rises when investors are getting more concerned about stock fluctuations, climbed to its highest level of the year.

Like many investors though, Frederick believes that the sell-off will represent a buying opportunity for those who have a longer-term investment perspective. Low inflation, rising corporate earnings and economic stimulus from the Federal Reserve still make stocks attractive, he says.

U.S. companies will start reporting earnings for the third quarter this week, giving investors something else to think about other than Washington. Aluminum producer Alcoa, which was recently removed from the Dow Jones industrial average, is scheduled to report its earnings after the close of trading Tuesday. JPMorgan and Wells Fargo are also among the companies releasing earnings this week.

There were also signs in the bond market that investors are getting increasingly uncomfortable with the stand-off in Washington.

In government debt trading, the yield on Treasury bills maturing in one month soared to 0.28 percent, hitting its highest yield since the 2008 financial crisis. The yield was 0.15 percent on Monday and close to zero at the beginning of October.

The yield, which rises as the price of the notes fall, has surged as managers of money-market funds become more wary of holding short-term government debt that matures shortly after the debt deadline.

The yield on the 10-year Treasury note was little changed at 2.63 percent. The yield on the longer-term note has fallen in the past month, suggesting that investors see any potential default as a short-term phenomenon and are predicting that economic growth will remain subdued in the longer term.

Stocks also slumped the last time that the U.S. came close to hitting its debt ceiling in the summer of 2011. The S&P 500 dipped 5 percent between the start of July and Aug. 2 of that year, when President Barack Obama signed into a law a bill that raised the debt ceiling and promised more than $2 trillion in cuts to government spending over a decade. Stocks extended their slide after S&P cut its rating on U.S. government debt on Aug. 5.

Analysts point out, though, that the global economy was in a far more fragile state two years ago than it is now. Europe was still in the throes of its debt crisis, the U.S. economic recovery was less entrenched and the U.S. budget deficit has shrunk since then.

The dollar fell against the euro and rose against the Japanese yen.

More Stocks in the News:
  • Jamba (JMBA) plunged $2.53, or 18.8 percent, to $10.94 after the company cut its fiscal 2013 guidance, saying reduced spending by consumers hurt its sales in the third quarter.
  • Xerox (XRX) fell 26 cents, or 2.5 percent, to $10.14 after the company said the Securities and Exchange Commission is investigating accounting practices at one of its units.
  • McKesson (MCK) rose $4.09 or 3.2 percent, to $133.72 after The Wall Street Journal reported that the health services company was in talks to acquire its German rival Celesio for about $5.1 billion.
  • J.C. Penney (JCP) gained 6 cents, or 0.8 percent, to $7.77, after the company reported encouraging sales trends for September. The struggling department store owner, which has faced concerns it is burning through cash, still anticipates having ample liquidity at year's end.

What to Watch Wednesday:

  • Federal Reserve releases minutes from its September interest-rate meeting.

Note: Many scheduled government reports have been postponed indefinitely because of the partial government shutdown.


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jrb359

All of this thanks to an anti-American president who hasn't admitted he was wrong in 5 years.

October 09 2013 at 6:13 AM Report abuse rate up rate down Reply
mkwrblwsk

Thank you Mr.PRESIDENT my 401K AND INVESTMENTS WERE REBOUNDING FROM THE CRASH AND I HAVE MOSTLY GAINED BACK WHAT i LOST BUT BECAUSE OF OCare I've almost lost what I gained in a couple days thanks to your stuborn attitude and OCare.Dump it know.

October 09 2013 at 2:58 AM Report abuse +1 rate up rate down Reply
dhhelter

Obama took burial benefits from veterans today. I hope when I pass they stand me up in the corner of his kitchen.

October 09 2013 at 12:53 AM Report abuse +1 rate up rate down Reply
dhhelter

Hang in there Boehner, don't give an inch to those democraps......And God Bless those congressmen who were arrested today for standing up for what they believed in.

October 09 2013 at 12:50 AM Report abuse +1 rate up rate down Reply
pdbliz

Have you hugged a Democrate today.????
I hugged 3,,one I wanted to choke...
One,,I wanted to run over..
Last one,,well....I wanted to throw him off a cliff...

October 08 2013 at 10:47 PM Report abuse -4 rate up rate down Reply
1 reply to pdbliz's comment
pdbliz

I am just kidding of course.........I wish all 3 mothers would have had a abortion like they vote for.!!!
3 less Democrates..........

October 08 2013 at 10:48 PM Report abuse -3 rate up rate down Reply
pdbliz

OBAMA why did you let the ILLEGALS use the National Mall today,,,when it was closed..
But,,,the old people and kids,,,can not go to the National Parks.
BOY,,,YOU ARE A PEICE OF WORK..
GOD BLESS YOU MR, PRESIDENT.!!!!!!!! YOU NEED IT,,,,,,,,
AND,,YES,,REPUBLICANS WILL GET THE BLAME.......SO,,,KEEP IT SHUT DOWN REPUBLICANS..
IT IS ALL A GAME ON BOTH SIDES........PLAYING THE PEOPLE LIKE FOOLS..

October 08 2013 at 10:45 PM Report abuse -4 rate up rate down Reply
dsfds

I saw Cruz and Palins remarks. I think they need drug tested. To bad there is no test for stupidity and the I am better then anyone else syndrome.

October 08 2013 at 9:33 PM Report abuse +6 rate up rate down Reply
dsfds

Thanks Tea party for taking food from our poor and elderly. Think about this when your ******* down your lobster and rib eye steaks. And of course we are paying the bill. Hope you all stick together and choke. But of course you have the health care that you refuse to give to the rest of us.

October 08 2013 at 9:31 PM Report abuse +4 rate up rate down Reply
1 reply to dsfds's comment
hugh_geenormous

What?

October 08 2013 at 11:55 PM Report abuse rate up rate down Reply
teapotparty11

THE POTENTIAL COLLAPSE IS OVERRATED, JUST LIKE THE CRASH OF 2008 DID NO HARM. THE TEA PARTY ASSURES US NOTHING WILL HAPPEN IF WE DEFAULT SO IT WILL BE OK.

October 08 2013 at 9:13 PM Report abuse -8 rate up rate down Reply
teapotparty11

DAY 8 AND WE ARE STILL WINNING! HOLD THE LINE JOHNNY BOY, OR WE WILL PRIMARY YOU OUT OF OFFICE IF YOU CAVE. VOTE STRAIGHT TEA PARTY IN 2014, TEA PARTY IS THE VERY FABRIC OF AMERICA. THE TEA PARTY IS THE VOICE OF ALL AMERICANS.

CRUZ-PALIN 2016

October 08 2013 at 9:10 PM Report abuse -10 rate up rate down Reply