By Kaitlyn Kiernan
U.S. stocks fell Tuesday as the continuing stalemate in Washington led investors to cash out of the market's
In the bond market, worries about the potential for the federal government to run out of money to pay its debts led to
a spike in U.S. Treasury bill yields.
The Dow Jones Industrial Average fell 91 points, or 0.6%, to 14845 in midafternoon trade. That comes on the back of a
136 point, or 0.9%, drop Monday, which left the Dow to close at a one-month low. On Tuesday, it was down for the 11th
time in 14 sessions.
The S&P 500 index lost 13 points, or 0.8%, to 1663, with economically sensitive names lagging behind, while the
defensive sectors of utilities and consumer staples saw gains. The Nasdaq Composite Index dropped 60 points, or 1.6%, to
Utilities, which have underperformed this year, were bucking the broader downtrend, adding 1.1%. The shift into
defensive stocks and away from more economically sensitive names is also evident in the bigger drop in the technology-
intensive Nasdaq Composite, said Matthew Cheslock, a trader with brokerage firm Virtu Financial.
"People can talk about a great buying opportunity, or how much money they are waiting to put to work, but we're not
seeing anyone ready to step in right now," Mr. Cheslock said. "Scared money will wait until there is something closer to
a resolution than we have now."
A handful of growth-sensitive sectors and stocks that have outperformed the S&P 500 over the past three months sold
off sharply. Technology, consumer-discretionary and materials stocks dropped 1.4%, 1.5% and 1.1%, respectively.
Bryan Novak, director of trading and portfolio manager at Astor Asset Management, said that most of the losses seemed
to be the result of fast-moving investors such as hedge funds taking risk off their books as the deadline for an
agreement to raise the debt ceiling approached.
"A lot of what you're seeing is a resetting of some of the short-term tactical trades moving into the debt-ceiling
crisis," said Mr. Novak. "The medium- to longer-term players aren't necessarily moving around in this market."
Increasing worries that a prolonged political gridlock could continue past the deadline to raise the debt ceiling have
weighed on investor sentiment. The S&P 500 had fallen 2.9% from its record closing high of 1725.52 on Sept. 18 through
"The shutdown is a now a sideshow. This is fully about the debt ceiling," said Quincy Krosby, a market strategist at
Prudential Financial, which manages roughly $1 trillion in assets.
Concern over a potential U.S. default was evident in Tuesday's bill auction. The Treasury Department sold $30 billion
worth of four-week bills maturing on Nov. 7 at a rate of 0.355%, the highest yield since October 2008.
Money-market funds and banks are dominant buyers of Treasury bills to park their idle cash for a short period of time,
but have shied away from the auction. The bid-to-cover ratio, a gauge of investor demand, was 2.75 times, down from 3.09
times a week ago.
"It was an awful auction," said Priya Misra, head of U.S. rates-strategy research at Bank of America Merrill Lynch.
In another sign of weak demand, the "tail," or the difference between the highest yield on the securities during the
auction and the expected high yield when the auction first gets started, was as big as 0.05%, the largest since March
25, 2008, according to Bank of America.
In another sign of heightened anxiety, the market's so-called fear gauge, the Chicago Board Options Exchange's
Volatility Index, rose 4% to 20.19. Earlier in the session, it reached as high as 20.55, which tops the year-to-date
closing high of 20.49.
Senate Democrats are planning a vote this week to extend the borrowing limit through 2014, but House Republicans said
they won't pass any debt-limit extension unless it includes deficit-reduction measures.
"Earnings season is about to begin. But the fact is, the focus remains on the political impasse," said Peter Cardillo,
chief market economist at Rockwell Global Capital.
Alcoa slipped as it prepares to unofficially kick off the third-quarter earnings-reporting season with its results
after the closing bell. The company beat earnings estimates the past two quarters.
Earlier, the National Federation of Independent Business' small-business optimism index for September slipped to 93.9
from a revised 94.1 in August, but topped expectations of 93.3.
Data on the August trade deficit and on job openings and labor turnover originally scheduled for Tuesday are postponed
due to the government shutdown.
October gold futures dropped 0.1% to $1,324 an ounce. On Monday, worries about the budget stalemate sent the safe-
haven metal up 1.2%, the first gain in three sessions.
November crude-oil prices rose 0.8% to $103.85 a barrel. The dollar gained ground against the yen and inched higher
against the euro.
European markets fell, with the Stoxx Europe 600 finishing down 0.8%, after disappointing data out of Germany.
Manufacturing orders in the euro zone's largest economy declined in August for a second-straight month versus
expectations of an increase, due to a large drop in foreign orders. Germany's DAX 30 index lost 0.4%.
Asian markets erased early losses to close mostly higher. Mainland Chinese markets reopened after being closed for a
weeklong holiday. The Shanghai Composite climbed 1.1% after being down 0.6% at its intraday low. Japan's Nikkei Stock
Average rose 0.3%.
In corporate news, J.C. Penney rallied after the retailer said the year-over-year decline in same-store sales slowed
last month, and it expects the improved sales trends it saw in September to continue through the rest of the year.
The U.S.-listed shares of Alcatel-Lucent fell after the Franco-American telecom-gear maker said late Monday it plans
to cut about 10,000 jobs world-wide as part of a restructuring.
Write to Kaitlyn Kiernan at Kaitlyn.Kiernan@wsj.com
(END) Dow Jones Newswires
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