MARKET SNAPSHOT: U.S. Stocks Drop; Dow Skids Nearly 160 Points
By Wallace Witkowski, MarketWatch , Saumya Vaishampayan
SAN FRANCISCO (MarketWatch) -- U.S. stocks fell sharply on Tuesday hit by growing jitters over the budget impasse in
Washington, with the partial government shutdown extending into a second week with few signs of a deal to end it or
raise the nation's debt ceiling.
The Dow Jones Industrial Average (DJI) dropped 159.71 points, or 1.1%, to close at 14,776.53, after touching an
intraday low of 14,773.47. The biggest decliner was Visa Inc. (V), down 2%, with J.P. Morgan Chase & Co.(JPM) and
International Business Machines Corp. (IBM) both finishing down about 1.8%.
The S&P 500 index (SPX) fell 20.67 points, or 1.2%, to 1,655.45, extending prior-day losses that pushed the index to a
four-week low. The worst performing sectors were telecom, materials, and consumer discretionary. Near the close, the S&P
500 traded as low as 1,655.03.
The Nasdaq Composite (RIXF) dropped 75.54 points, or 2%, to end the day at 3,694.83, soon after touching an intraday
low of 3,694.15, reflecting Tuesday's weakness in the technology sector.
The CBOE Volatility Index, or so-called "fear index," topped 20 for the first time since June and was up 5.4% at 20.45
in recent activity.
In a press conference, President Obama said he is happy to negotiate with House Republicans but not under the threat
of keeping the government closed or not raising the debt ceiling. "We're not going to pay a ransom for America paying
its bills," Obama said.
House Speaker John Boehner said Tuesday that Obama and Democrats need to negotiate over the U.S. debt ceiling and
shutdown. "I'm not drawing any lines in the sand," he said in response to whether he wanted a specific amount of debt
reduction. Obama and Boehner talked by phone on Tuesday and the president reiterated he will not negotiate over the
shutdown or the debt ceiling.
Obama said Monday there are enough votes in the House to pass a debt-ceiling increase and end the shutdown without
further concessions from Democrats, rejecting Boehner's assertion that the votes aren't there.
The House of Representatives isn't likely to pass a debt-ceiling increase this week, according to a report in
Politico. A failure to raise the debt limit by Oct. 17 would mean the U.S. couldn't borrow money to pay its bills,
triggering an unprecedented default, Treasury Secretary Jack Lew has said.
Stocks have been pretty resilient so far during the shutdown. Since the shutdown started on Oct. 1, the Dow
industrials are off by 2.3%, the S&P 500 is down 1.6%, and the Nasdaq is off by 2%, with Tuesday's losses making up a
big part of the month-to-date loss.
The continued rhetoric out of Washington is sapping optimism that the shutdown and debt ceiling are going to be
resolved by Oct. 17, said Robert Pavlik, chief market strategist at Banyan Partners.
"There's not a lot of interest to buy when the rhetoric is negative and there's no soon end to it," Pavlik said. Also,
taking away interest to buy is the S&P 500 dipping below its 100-day average.
Lacking optimism that there will be any resolution in Washington soon, there are very few investors willing to buy on
the dips, he said. That waning optimism is having a particularly negative effect on so-called "momentum" stocks such as
Facebook Inc. (FB), Priceline.com Inc. (PCLN), and Tesla Motors Inc. (TSLA), Pavlik said. Facebook closed down 6.7%,
Priceline fell 4.2%, and Tesla dropped 4.6%.
"Clearly, everyone is waiting to hear some news out of Washington, D.C.," said Peter Sidoti, chief executive officer
of Sidoti & Co. The shutdown "is overshadowing earnings and the underlying economy, which continues to get better," he
McKesson Corp. (MCK) shares closed up 3.2%, one of the top gainers on the S&P 500 after The Wall Street Journal
reported that the company was in advanced discussions to buy competitor Celesio AG .
Shares of TripAdvisor Inc. (TRIP) declined 5.5% for its fourth straight session of losses.
Declining stocks outnumbered advancers by more than four to one on the New York Stock Exchange and the Nasdaq.
Composite volume topped 3.5 billion shares for NYSE-listed stocks and 2 billion shares for Nasdaq-listed stocks by the
A shutdown of a month or longer could prompt a 20% to 30% correction in the stock market, according to strategist
Barry Ritholtz. A prolonged government shutdown could also push out expectations for a slowing of the Federal Reserve's
monthly bond purchases, which could support stocks. Economists at Bank of America Merrill Lynch expect a shutdown of two
weeks will shave 0.5 percentage points off fourth-quarter GDP.
In other markets, gold futures closed down slightly and crude-oil futures gained.
The dollar inched higher versus the yen, a day after hitting a nearly two-month low against the Japanese currency.
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