Closing Bell: Stock Markets Retreat in the Face of Government Shutdown Fears

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Thursday, June 13, 2013. Photographer: Jin
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Stocks closed lower Monday as Wall Street braced for a government shutdown. Investors pulled back from stocks as a budget fight in Congress threatened to push the federal government into a partial shutdown for the first time in 17 years. Lawmakers have until midnight Tuesday to reach a budget deal that would keep government in full operation

The Dow Jones industrial average (^DJI) fell 128 points to close at 15,129. The Standard & Poor's 500 index (^GPSC) lost 10 points to 1,681. The Nasdaq (^IXIC) fell 10 points to 3,771.

There was little evidence that the Democratic-controlled Senate and Republican-led House of Representatives were any closer to a budget agreement Monday afternoon, hours before the deadline.

The dispute is poised to continue into mid-October as legislators debate raising the nation's borrowing limit. That's a major issue for investors: The credit of the United States is the bedrock that nearly every other investment is built upon, due largely on the assumption that the nation will always 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 high 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.

%VIRTUAL-article-sponsoredlinks%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.

Benchmark oil also dropped 57 cents to $102.30 a barrel in New York. And gold ended the day lower, down $11.90 to $1,326.50 an ounce.

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.

Stocks in the News:
  • Lawyers for BP (BP) were in court hoping to answer the question of how much oil was spilled into the Gulf of Mexico after the Deepwater Horizon rig blew up in 2010, and what level of negligence by BP led to the accident. Billions of dollars in fines ride on the outcome. BP stock closed down 77 cents, or 1.8 percent, to $42.03.
  • Buffalo Wild Wings (BWLD) touched an all-time high of $113.12 after an analyst increased the restaurant operator's price target, citing stable chicken wing costs and better-than-expected growth in a key revenue metric. Shares closed the day up $1.68, or 1.7 percent at $111.18.
  • Regeneron Pharmaceuticals (REGN) also notched an all-time high of $319.83 after the company reported new and positive details from studies of its drug Eylea as a treatment for diabetic macular edema. Shares ended the day up $7.21, or 2.4 percent, at $312.86.
  • Arena Pharmaceuticals (ARNA) sunk Monday after a Credit Suisse analyst slashed his forecasts for sales of the company's weight-loss drug Belviq. Shares ended the day down more than 9 percent to $5.26.

What to Watch Tuesday:

• The Institute for Supply Management releases its manufacturing index for September, 10 a.m.
• The Commerce Department releases construction spending for August, 10 a.m.;

• Automakers release vehicle sales for September.
• Walgreen (WAG) reports third-quarter financial results before the market opens.
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