U.S. Stocks Fall as Investors Face Government Shutdown
<cite class="byline" style="margin: 0px; padding: 0px; border: 0px; outline: 0px; font-size: 11px; vertical-align: baseline; background-color: transparent; width: 640px; color: rgb(111, 111, 111); display: block; font-style: normal; line-height: 1.3em; position: static !important; background-position: initial initial; background-repeat: initial initial;">By Namitha Jagadeesh & Nikolaj Gammeltoft - Sep 30, 2013 11:04 PM GMT+0800</cite>
U.S. stocks slid, paring a quarterly gain for the Standard & Poor’s 500 Index, as a stalemate over the federal budget increased the likelihood of a government shutdown.
All 10 main industries in the S&P 500 dropped, with financial, telephone and energy shares falling the most. Microsoft Corp. retreated 1.1 percent to lead declines among the largest companies.
The S&P 500 fell 0.5 percent to 1,683.74 at 11:01 a.m. in New York, after declining as much as 1 percent earlier in the day. The benchmark gauge has added 3.1 percent this month, extending its quarterly gain to 4.8 percent, as the Federal Reserve kept its $85 billion of monthly bond-buying. The Dow Jones Industrial Average lost 103.14 points, or 0.7 percent, to 15,155.10 today. Trading in S&P 500 stocks was 2.1 percent below the 30-day average at this time of day.
“The negative market reaction is appropriate,” Tim Hartzell, who helps manage about $425 million as chief investment officer at Sequent Asset Management, said via phone from Houston. “We’ve been down this road before. It’ll last until there’s some disruption or event that’ll cause outrage in the public and then the politicians snap in line to settle it.”
U.S. lawmakers have to approve emergency legislation by midnight to keep the federal government operating from tomorrow, the beginning of the 2014 fiscal year. Failure to do so may result in as many as 800,000 federal employees being placed on temporary unpaid leave.
Government Negotiations
The Senate convenes at 2 p.m. in Washington today, after a weekend with no signs of negotiations from Republicans and Democrats. House Republicans want to delay PresidentBarack Obama’s Affordable Care Act for a year and make other changes to the health law. The Democrats vow not to let that happen.
In a government shutdown, essential operations and programs with dedicated funding would continue. The Treasury will sell debt, while economic reports from the Commerce Department will be suspended and the Bureau of Labor Statistics will stop operations. Commerce is scheduled to release data this week on construction spending and factory orders before the Labor Department’s closely watched jobs report on Oct. 4.
The S&P 500 fell 1.1 percent last week, its first weekly drop since August, amid concern the budget impasse will hurt the economy. A shutdown would reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its duration, according to economists. Three rounds of Fed stimulus and better-than-forecast corporate earnings havepushed the S&P 500 up 150 percent from a March 2009 low.
Debt Ceiling
U.S. lawmakers face their next fiscal dispute over raising the $16.7 trillion debt ceiling. The Treasury has said measures to avoid exceeding the limit will be exhausted on Oct. 17.
The debt limit is a bigger problem than a federal shutdown, though the U.S. will probably avoid both, Moody’s Investors Service said in a report today.
“It’s a headwind with the government shutdown, but it’s not as meaningful to investors as the debt ceiling,” Oliver Pursche, co-manager of the GMG Defensive Beta Fund and president of Suffern, New York-based Gary Goldberg Financial Services, said in a phone interview. The firm manages about $800 million. “If we don’t raise the debt ceiling, then the U.S. government won’t be able to pay its bills and that’s much more damaging.”
The S&P 500 dropped as much as 3.4 percent over the last two weeks of 2012 as lawmakers wrangled over impending automatic spending cuts and tax increases known as the fiscal cliff. It then jumped 5 percent in January for the best start to a year since 1997 after a last-minute budget deal was struck.
The VIX, a measure of the cost to protect against declines in the S&P 500, jumped 8.3 percent to 16.75 today. While it also rose during the previous two sessions, it remains on pace for itssecond consecutive annual decline after retreating 6.5 percent in 2013. It closed at 15.46 at the end of last week, 24 percent below its average since 1990.
To contact the reporters on this story: Namitha Jagadeesh in London [email protected]; Nikolaj Gammeltoft in New York at [email protected]
To contact the editor responsible for this story: Lynn Thomasson [email protected]
