Markets continued to be dragged down by lingering concerns over the deadlock in debt-ceiling negotiations and volumes remained low as investors adopted a wait and watch stance. Benchmarks continued to slide for the second consecutive day in the absence of strong economic reports or encouraging earnings results.
The Dow Jones Industrial Average (:DJIA) dropped 0.7% to settle at 12,501.30. The Standard & Poor 500 (S&P 500) closed at 1,331.94, after shedding 0.4%. The Nasdaq Composite Index lost 0.1% to finish the day at 2,839.96. The fear-gauge CBOE Volatility Index (:VIX) jumped 4.6% and traded over 20. On the New York Stock Exchange, NYSE Amex and Nasdaq, consolidated volumes were a mere 6.53 billion shares compared with the daily average of 7.49 billion. The markets’ breadth was dominated by decliners as for every two stocks that declined on the NYSE, only one stock managed to move up.
Only six of the 30 Dow components managed to settle in the green while the rest closed in the red. The blue-chip index was heavily pressurized by 3M Co. (NYSE:MMM), which dropped 5.4% after it reported weakness in some of its segments. Other decliners in the Dow included Alcoa, Inc. (NYSE:AA), Boeing Co. (NYSE:BA), General Electric Co. (NYSE:GE) and United Technologies Corp. (NYSE:UTX) and these stocks lost 1.1%, 1.6%, 2.1% and 1.3%, respectively.
The benchmarks have been reeling under the mounting pressure caused by the impasse over lifting the debt ceiling. Republicans and the Democrats continue to be at odds, even though the deadline for raising the debt limit is barely a week away. The two parties clearly appear to have divergent positions on the matter and both of them have prepared opposing proposals to rescue the nation from the default. Meanwhile, talks between President Barack Obama and House of Representatives Speaker John Boehner broke down over the weekend, as the latter claimed the talks were futile since the President was demanding a tax hike. Meanwhile, are Republicans demanding more spending cuts and have declined to consider any tax hike proposals.
Uncertainty prevails over whether the US will actually raise the multi-trillion debt ceiling by August 2, which is absolute necessary if it is to retain its ‘AAA’ credit rating. While words like ‘Armageddon’ have already been used to term the possible default, the nation clearly faces a huge task going forward. Earlier, Moody's Investors Services had put the US’ AAA rating under review for a possible downgrade, citing "the rising possibility" that Congress will fail to pass the debt ceiling by August 2. If Congress does not raise its $14.3 trillion debt ceiling by August 2, the Treasury Department may fail to pay at least 40% of its bills. Additionally, Fitch Ratings reiterated that it plans to downgrade the US sovereign debt rating to negative if the federal government fails to meet the August 2 deadline.
Amid the gloom, the technology sector was aided by favorable earnings from Broadcom Corp. (NASDAQ:BRCM). The Technology Select Sector SPDR (NYSEArca:XLK - News) fund was up 0.5% and Broadcom’s shares leaped 9.4% after it reported strong results on Monday night. Joining the gainers in the sector were stocks like eBay Inc. (NASDAQ:EBAY), Apple Inc. (NASDAQ:AAPL), Hewlett-Packard Company (NYSE:HPQ), Google Inc. (NASDAQ:GOOG) and Yahoo! Inc. (NASDAQ:YHOO) and they moved up by 1.8%, 1.2%, 1.0%, 0.6% and 1.8%, respectively. Additionally, Baidu, Inc. (NASDAQ:BIDU) gained 5.0% after suggesting enough strength in its results.
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