Belfast Telegraph

US stocks drop amid budget worries

Washington's budget fight jolted Wall Street yesterday, reminding it that the next few weeks could bring a lot of uncertainty.

Investors hate uncertainty, and stocks plunged in afternoon sell-off that wiped out all the gains from rally earlier this week, when the Federal Reserve kept its huge economic stimulus programme intact.

Major indexes were mixed in morning trading, but turned lower around midday after the US House of Representatives voted not to fund President Barack Obama's health care law.

The vote itself was not a surprise, but it reminded investors that the Republican-led House and the Democratic-controlled Senate are poised for a showdown over federal spending.

The debt ceiling must be raised by October 1 to avoid a government shutdown, and a potential default on payments, including debt, later in the month.

"What we've done is basically committed ourselves to two weeks of worry," said Sam Stovall, chief equity strategist at S&P Capital IQ.

The Dow Jones industrial average dropped 185.46 points, or 1.2 %, to close at 15,451.09 - 225 points below its all-time closing high reached on Wednesday after the Fed's announcement.

The Standard & Poor's 500 index fell 12.43 points, or 0.7%, to 1,709.91. The Nasdaq composite fell 14.66 points, or 0.4%, to 3,774.73.

All 10 industry groups in the S&P 500 fell, led lower by telecom companies and utilities. The S&P also fell on Thursday, making this its first two-day decline in almost three weeks.

Until now, September defied the worriers. The stock market has bounced backed from an August slide, despite a calendar loaded with potential rally killers.

Fears of a conflict with Syria have faded, and Wall Street cheered when Larry Summers withdrew his name as a candidate to replace Federal Reserve chairman Ben Bernanke.

Mr Summers, a former Treasury secretary, was viewed as being more likely to rein in the Fed's massive stimulus programme, which has kept interest rates low and boosted corporate profits.

As Middle East strife recedes from investors' minds, though, fears of budget gridlock grow.

"Geopolitics ... is much lower on the list. It's not off the list" of investor worries, said David Darst, chief investment strategist for Morgan Stanley Wealth Management. "No 1 becomes the debt ceiling and the federal spending debate."

AP

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