Another breakdown in budget negotiations sent stock prices sharply lower Tuesday, snapping a four-session winning streak.
The Dow Jones industrial average fell 133.25 points to 15,168.01. The Nasdaq Composite Index dropped 21.26 points to 3,794.01, and the Standard & Poor’s 500 Index was down 12.08 points to 1,698.06.
An important report on inflation scheduled for release today will be delayed because of the partial shutdown of the federal government. The consumer price index for September is used in determining cost of living adjustments for federal programs such as Social Security.
Oil prices fell to the lowest level since early July. Crude closed at $101.21 a barrel, down $1.20. Gold declined $3.40 to $1,273.20 an ounce.
“Everyone is somewhat over-caffeinated and a bit jittery, in part because of politicians not doing their job,” said Chad Morganlander, a Florham Park, N.J.-based portfolio manager at Stifel Nicolaus & Co., which oversees about $130 billion of assets. “The markets are trading on every news clip and the uncertainty is increasing, which is having an unstabilizing effect in the markets.”
The benchmark index dropped as much as 0.8 percent after Senate Majority Leader Harry Reid rejected a House plan to halt the fiscal impasse and Senate leaders stopped talks on a bill that would fund the government through Jan. 15, 2014, and suspend the U.S. debt limit until Feb. 7. The Senate talks haven’t broken down, spokesmen for the chamber’s top leaders said.
The House plan, which Majority Leader John Boehner is still developing, contains policy conditions Democrats have previously rejected. The federal government shutdown is in its 15th day and U.S. borrowing authority will lapse Thursday.
The House plan, which Republican leaders presented to their members this morning, “can’t pass the Senate and won’t pass the Senate,” Reid, a Nevada Democrat, said on the floor today. Reid and Minority Leader Mitch McConnell of Kentucky had been closing in on an agreement.
“The knee-jerk reaction will be to sell on any kind of bad news,” said Kevin Caron, a market strategist at Stifel Nicolaus & Co. “The market is looking for progress, so anything that’s not indicative of progress, the answer’s going to be shoot first and ask questions later.”
The impasse has left the government partially shut down since Oct. 1 and could lead to the U.S. reaching the limit on federal borrowing Oct. 17.
The S&P 500 closed at its highest Monday since Sept. 19 after a four-day rally gave it the biggest advance since January, as optimism grew that lawmakers would reach a deal to prevent a government default. The rally pushed the gauge to within 16 points of its Sept. 18 record of 1,725.52.
“If we can get through this political mess, then we can really start to focus on more fundamental things like earnings,” said Thomas Garcia, head of equity trading at Santa Fe, N.M-based Thornburg Investment Management Inc. His firm manages more than $90 billion. “The numbers that we are going to start to get for the last month, you might see a little bit of a slowdown from the government shutdown.”
A report today showed manufacturing in the New York region grew at a slower pace than projected in October as sales and hiring cooled. Intel Corp. (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), Yahoo! Inc. (Nasdaq: YHOO) and Coca-Cola Co. (NYSE: KO) are among nine companies in the S&P 500 that are scheduled to release third-quarter results today.
Profits for companies in the S&P 500 probably increased 1.4 percent during the three months while sales rose 2 percent, according to analysts’ estimates compiled by Bloomberg.
The government shutdown has delayed the publication of some closely watched economic data, including the Labor Department’s monthly jobs gauge.
Even with a deadline looming for the U.S. to avoid a debt default, it’s been a comparatively calm October for financial markets. Daily swings in the S&P 500 have averaged 0.78 percent so far this month through Monday, down from 0.9 percent for Octobers over the last eight decades and less than a quarter the moves in 1929, 1987 and 2008, data compiled by Bloomberg show.
U.S. equities aren’t overpriced even though they have historically elevated valuations, Robert J. Shiller, a co-winner of this year’s Nobel Prize in economics, said Tuesday in a Bloomberg Television interview with Tom Keene and Sara Eisen.
Companies are “relatively high-priced” according to Shiller’s cyclically adjusted price-earnings ratio, or CAPE, which compares the S&P 500 with companies’ average profits during the past 10 years, he said.
“The U.S. market is still not that overpriced, not like it was in 2000,” even though “we’re pretty high” using the CAPE gauge, he said. “Looking at the alternatives, it should be a part of your portfolio.”