Debt standoff pressures stocks, drives wary mood

NEW YORK Mon Jul 25, 2011 7:35pm EDT

Traders work on the floor of the New York Stock Exchange in New York July 25, 2011. The Democratic-led Senate and Republican-led House of Representatives consider rival plans this week to reduce the deficit and raise the debt ceiling. REUTERS/Lucas Jackson

Traders work on the floor of the New York Stock Exchange in New York July 25, 2011. The Democratic-led Senate and Republican-led House of Representatives consider rival plans this week to reduce the deficit and raise the debt ceiling.

Credit: Reuters/Lucas Jackson

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NEW YORK (Reuters) - Stocks dipped on Monday as lawmakers remained in a standoff over raising the debt ceiling to avoid default, but investors were convinced a compromise will be reached before next week's critical deadline.

Trading volume, however, was light even for a seasonally quiet period, suggesting investors were holding to the sidelines. In another sign of negative sentiment, declining stocks far outpaced advancers despite the day's moderate declines.

Lawmakers are facing an August 2 deadline to raise the $14.3 trillion debt ceiling to avert a U.S. default.

"If you listen to all of the rhetoric and read all of the print, August 2 has the potential of being one of the worst days ever, if the debt ceiling isn't raised," said Hank Smith, chief investment officer at Haverford Trust Co. in Philadelphia.

But the market is not reacting as if that's going to happen, he said. "Politicians are being politicians...but when they get to the end of the cliff, they're not going to jump. They will raise the debt ceiling."

A deal remained elusive in Washington as President Barack Obama's Democrats and their Republican rivals pushed for separate budget proposals in Congress, increasing the threat of a ratings downgrade and default that could sow chaos in global markets. For details, see [ID:nN1E76N0CA] A two-stage Republican plan would call for $1.2 trillion in cuts.

Investor anxiety remained high, reflected in the CBOE Volatility Index .VIX, which jumped 10.5 percent, its biggest percentage increase in two weeks.

The Dow Jones industrial average .DJI was down 88.36 points, or 0.70 percent, at 12,592.80. The Standard & Poor's 500 Index .SPX was down 7.59 points, or 0.56 percent, at 1,337.43. The Nasdaq Composite Index .IXIC was down 16.03 points, or 0.56 percent, at 2,842.80.

Among the weakest sectors were health care .GSPA, telecommunications .GSPL and consumer staples .GSPS, erasing some of last week's market gains notched on second-quarter earnings that were mostly stronger than expected. The S&P index of each sector was down at least 1 percent.

On the New York Stock Exchange, decliners outweighed advancers by about 4-to-1, while Nasdaq losers beat winners by about 10-to-3.

The political jousting in Washington pushed gold prices to record highs as the fear of a default raised the appeal of bullion versus the greenback. The dollar fell to a record low against the Swiss franc, a safe-haven currency.

"There is concern about the implication about what our own debt rating will be as we air out this dirty laundry to try to come to a resolution," said Kevin Caron, market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey.

Strong earnings reports have offset worries about the debt debate, helping stock indexes post gains last week. Of the 154 S&P 500 companies that have reported earnings so far, 75 percent have beaten analyst expectations, according to Thomson Reuters data.

But among Monday's results, Kimberly-Clark Corp (KMB.N) declined 2.1 percent to $66.48 after it said 2011 profits may be at the low end of its forecast.

Another disappointment came from hospital operator HCA Holdings Inc (HCA.N), which reported quarterly profit and revenue that were short of expectations, spooking investors who feared it indicated the start of a trend. [ID:nN1E76O075] HC shares dropped 19.2 percent to $27.97.

Other big decliners for the day included U.S.-listed shares of Research In Motion Ltd RIM.TORIMM.O , which were off 4.4 percent at $26.67 after the BlackBerry maker decided to cut about 11 percent of its work force as it struggles to compete against Apple Inc (AAPL.O) and Google Inc (GOOG.O).

After the close, shares of Netflix Inc (NFLX.O) dropped 9.4 percent to $255 after the video rental company reported revenue that fell short of expectations and cautioned about third-quarter subscriber growth. Shares of Texas Instruments TXN.N dipped 1 percent to $31.15 before trading near unchanged after the chipmaker posted results.

However, shares of Chinese search engine Baidu Inc (BIDU.O) jumped 6 percent to $166 after the bell as it reported revenue that beat market expectations.

Trading volume on the New York Stock Exchange, NYSE Amex and Nasdaq was at 5.94 billion, well below the daily average of 7.49 billion.

(Reporting by Caroline Valetkevitch; additional reporting by Ashley Lau; Editing by Leslie Adler)

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Comments (9)
Psychosis wrote:
because of the debt talks?????? lol whatever 100 points is nothing in todays market it went up and down over 100 points last week

this drop is due to the ratings drop greece just earned today …. ca rating

you heard it here first……….raising the debt ceiling will be remembered as one of the last times we actually had a chance to fix our financial issues as a country. that and 1.5 trillion dollar deficits ………………..

Jul 25, 2011 8:32am EDT  --  Report as abuse
SoCalMike wrote:
Reuters does Bait and Switch new reporting like perfect statists.
Readers are expected to accept the premise that the budget impasse is making markets nervous but many Reuters articles this is false too.

The working public know what media and officialdom prey they never find out. The amateurs are in charge of economic and foreign policy and they don’t know how to drive.
BHO, the US State Department and Geitner are spectacular incompetent naive boobs unqualified to do their jobs. Adding to this mess American diplomats are now in bed with the Muslim Brotherhood.

Why would markets be nervous? Economics of plunder combined with a foreign policy of sellout and appeasement.

Jul 25, 2011 9:37am EDT  --  Report as abuse
whome.doyou wrote:
you might just be going through the 5 stages of grief – it sounds like you’re expressing your mental presence in the negotiating stage of grief.
Good luck!

Jul 25, 2011 10:02am EDT  --  Report as abuse
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