- Texas man arrested for powder-letter hoax
- Islamic State opens ‘marriage bureau’ for single jihadists
- Drone almost blocks California firefighting planes
- Tornado rips off roofs, downs trees near Boston
- GOP: Environmental rules keeping agents from accessing border
- John Kerry: Millions displaced by religious fighting in 2013
- Federal appeals court rules against Virginia’s gay marriage ban
- White House says Russia ‘losing’ war in Ukraine
- Hamas turns to North Korea for weapons deal, Iran for money
- Syrian casualties surge as jihadis consolidate
Stocks sink as government heads toward shutdown
Question of the Day
NEW YORK (AP) — Stocks sank Monday as Wall Street worried that a budget fight in Washington could lead to something far worse for the economy — a failure to raise the nation’s borrowing limit.
The Dow Jones industrial average was down 91 points, or 0.6 percent, to 15,167 as of 2:55 p.m. EDT. The Standard & Poor’s 500 slid 6 points, or 0.4 percent, to 1,685, and the Nasdaq composite dropped 3 points, or 0.1 percent, to 3,778.
There is a simple reason why the budget battle — and, more importantly, the fight over the debt ceiling — are so crucial: The credit of the United States is the bedrock upon which nearly every other investment is built, due largely to the assumption that the nation always will pay its debts.
“The concern is government has become so polarized that if they cannot pass (a budget), there’s a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default,” said Alec Young, global equity strategist with S&P Capital IQ.
Monday’s decline adds to what has been eventful September for investors. Stocks hit an all-time on Sept. 18 after the Federal Reserve voted to keep up its economic stimulus program. But that enthusiasm vanished as Wall Street began to worry that the political bickering between the parties would lead to a government shutdown and crisis over the debt ceiling.
Investors are likely to see one of those worries come to pass.
On Monday, a partial government shutdown appeared imminent. Congress and the White House were no closer to a deal on funding federal spending. The U.S. Senate voted Monday afternoon to table the House of Representatives’ temporary budget bill.
If no deal is reached by midnight on Tuesday, the federal government will partially shut down for the first time in 17 years.
A shutdown lasting two weeks could slice 0.3 percentage points off U.S. gross domestic product, according to a report by Macroeconomic Advisers. That is due to hundreds of thousands of federal workers going without a paycheck. Although in previous government shutdowns Congress passed legislation to provide retroactive pay to federal workers, restoring that growth to U.S GDP, that move is not certain this time.
Some investors think a shutdown may be a positive event in the long term. The political pressure of a shutdown could force politicians to get down to business and negotiate — particularly on the issue of the debt ceiling.
“This may be good thing in the long run because it may lead to compromise,” said J.J. Kinahan, chief strategist at TD Ameritrade.
Treasury Secretary Jack Lew said last week that the government would run out of borrowing authority by roughly Oct. 17. The last time the debt ceiling issue came up, in August 2011, it led to Standard & Poor’s downgrading the United States’ credit rating, and the Dow Jones industrial average went through nearly three weeks of nauseating triple-digits moves almost daily.
The benchmark U.S. 10-year Treasury note is used to value mortgages, corporate bonds and even stock dividends. If domestic and foreign investors begin to question whether the U.S. will pay its debts, it could throw every other investment out of alignment.
Despite the worries about what’s going on in Washington, the S&P 500 is on pace to end the month up 3.6 percent.
TWT Video Picks
The Second Amendment applies to the District, too
- D.C. seeks to stay judge's order allowing gun owners to carry in public
- Illegal immigrants demand representation in White House meetings
- Hillary Clinton: Forget Obama, George W. Bush made her 'proud to be an American'
- Iraqi Christians rally at White House: 'Obama, Obama, where are you?'
- Romney would win popular vote in rematch against Obama: CNN poll
- White House says Russia 'losing' war in Ukraine
- Babson College, BYU win top spots in Money magazine's college rankings
- Tennessee Gov. Haslam slams White House for secret dump of illegals in his state
- White House defends Kerry failure to broker Middle East cease-fire
- DeSean Jackson working on offensive cohesiveness with Redskins teammates
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world
Fighting in Iraq