Dow falls 185 as shutdown threat slams stocks
Stocks sell off after the House votes to defund Obamacare, setting up a showdown between Senate Democrats and the Obama administration.
Stocks tumbled Friday afternoon after the House of Representatives approved a bill to fund the government until the end of the year -- but only if the Affordable Care Act is defunded.
The Dow Jones industrials ($INDU) suffered its worst loss in more than a month. Friday's loss was bigger by nearly 40 points than the blue chips' 147-point gain that resulted from the Federal Reserve's Wednesday decision not to trim back its bond-buying program.
With the vote, odds of a government shutdown after Sept. 30 have increased sharply. So has the possibility that the nation's debt ceiling wont be increased, triggering a potential default. "Anything that smacks of a government shutdown is bad for the market," said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Va.
The bill goes to the Senate, which will probably turn it down. If it gets to President Obama, he has promised to veto it.
The Dow closed down 185 points to 15,451, its worst one-day loss since Aug. 15. The Standard & Poor's 500 Index ($INX) had dropped 12 points to 1,710, and the Nasdaq Composite Index ($COMPX) had lost 15 points to 3,775.
The sell-off cut the stock market's gains for the week substantially. The Dow was up 0.7% for the week. After Wednesday's close, the blue chips had been up 2% for the week. The S&P 500 gained 1.3%; it had been up more than 2.2%. The Nasdaq gained 1.4%; it had been up nearly 1.7%.
For September, the Dow is up 4.3%, with the S&P 500 up 4.7% and the Nasdaq up 5.2%. For the year, the blue chips have gained 17.9%, while the S&P is ahead 19.9% and the Nasdaq sporting a 25% gain.
The big question is if Friday's sell-off is a one-off event or something more serious. Tuz thinks the shut-down threat and the potential of a debt default later in the fall could trigger a long-anticipated sell-off of perhaps 6%.
Stocks were off modestly until about 10:45 a.m. when it became apparent how the House vote would go. Selling was steady until about 3:15 when the market appeared to stabilize.
The selling was exacerbated when James Bullard, president of the St. Louis Federal Reserve Bank, said the Fed might taper its bond-buying in October.
In addition, there was a re-weighting in the S&P 500, and three stocks were leaving the Dow after Friday. Bank of America (BAC), Alcoa (AA) and Hewlett-Packard (HPQ) leave the index, to be replaced by Goldman Sachs (GS), Nike (NKE) and Visa (V).
The selling in stocks was mirrored in commodities. Gold (-GC) fell $36.80 to $1,332.50 an ounce. Crude oil (-CL) in New York dropped $1.11 to $104.75 a barrel. The national average price of a gallon of gasoline fell to $3.491 from $3.494 on Thursday, according to AAA's Daily Fuel Gauge Report.
Smartphone maker BlackBerry (BBRY) shares were down $1.80 to $8.73. The company warned it will report a loss of nearly $1 billion in its fiscal-second quarter. Revenue will be about $1.6 billion, about 48% lower than the consensus estimate. It will also lay off 4,500 workers.
The big question is if the company can survive the intense competition from competitors like Samsung, Apple (AAPL) and Microsoft (MSFT). (Microsoft is the publisher of MSN Money.)
BlackBerry, the renamed Research In Motion, is scheduled to report results on Sept. 27.
Only three of the 30 Dow stocks were higher: pharmaceutical giant Pfizer (PFE), up 13 cents to $28.97; Coca-Cola (KO), up 9 cents to $39.40; and JPMorgan Chase (JPM), up 5 cents to $52.80.
The laggard was Caterpillar (CAT), down $3 to $84.75 after reporting that global sales from its dealers fell in the last three months. The maker of construction and mining equipment said that total world machine orders were down 10%. That was came after a 9% decline in July and an 8% drop in June. Only North American sales showed growth.
Meanwhile, only 87 S&P 500 stocks were higher, led by Teradata (TDC) and Netflix (NFLX). The laggards were Olive Garden-parent Darden Restaurants (DRI) and aerospace-equipment maker Rockwell Collins (COL), down $4.22 to $70.06. Darden is struggling to see restaurant sales grow. Rockwell was lower because of federal budget worries.
Facebook (FB), Tesla Motors (TSLA) and Netflix led the Nasdaq-100 Index ($NDX), which tracks the largest Nasdaq stocks. The index fell 13 points to 3,225 with only 35 stocks showing gains on the day.
Health-insurance provider Cataraman (CTRX) and gold producer Randgold Resources (GOLD) were the laggards.
Health-insurance stocks were hit hard this week by the potential that Obamacare might be threatened. The Morgan Stanley Healthcare Payor Index (HMO) fell 5.7%.
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A US SOLDIER: You notice we can always afford war, but not healthcare like other industrialized
nations.These last 2 wars,after the VA benefits for the next 30 years will end up costing us
billions if not trillions.
Meanwhile, the GOP Congressmen enjoy the best healthcare your tax-dollars can buy...but we're not considered worthy...
We know who they really represent, and we vote.
it would be so nice to see a shutdown.
A fair value for the Dow is 12,250 +/-
For the S&P: 1,375 +/-
And this is an optimistic estimate.
Everything else is froth.
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