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Question of the Day
NEW YORK (AP) — Stocks ground lower Tuesday as budget gridlock in Washington brought the United States closer to an unprecedented default on its debt.
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 Obama’s health care law. The president wants a bill to simply reopen the government, without strings attached.
“Unfortunately, we’re just held hostage by what’s going on in Washington,” said Dan Veru, chief investment officer of Palisade Capital Management. “The markets are somewhat directionless right now.”
Treasury officials warned last week that the U.S. could plunge into recession if the debt ceiling isn’t raised. Democrats controlling the Senate plan to move quickly toward a vote to allow the government to borrow more money, challenging Republicans to a filibuster.
The S&P 500 index dropped 17 points, or 1 percent, to 1,659 as of 2:15 p.m. EDT. The index is trading at its lowest level in a month. Declines were led by phone companies.
The Dow Jones industrial average fell 120 points, or 0.8 percent, to 14,815. The Nasdaq composite dropped 67 points, or 1.8 percent, to 3,702.
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 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.
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 recently was 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 signs in the bond market and elsewhere that investors are getting increasingly uncomfortable with the standoff 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.
The VIX index, which rises when investors are getting more concerned about stock fluctuations, rose again and is close to its highest level of the year.
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 Mr. 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.
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