Stocks Dip as Wall Street Expects Government Shutdown

Inaction on shutdown, debt ceiling could raise expenses on homes, cars and credit.

Men watch the electronic stock indicator of a securities firm on Monday, Sept. 30, 2013, in Tokyo. Japan's Nikkei 225 stock average closed 2.1 percent lower at 14,455.80 as financial markets were rocked Monday by fears that the U.S. government was heading for a shutdown and renewed political instability in Italy.
By SHARE

Wall Street showed its pessimism about whether Congress can negotiate on a deal to avoid a government shutdown by its midnight deadline, as the stock market dipped quickly after opening on Monday.

The Dow Jones Industrial Average fell 0.7 percent to 15,154 shortly after Wall Street opened on Monday, while the S&P 500 dropped 0.6 percent to 1,682 and the Nasdaq Composite fell 0.5 percent to 3,763, according to the Wall Street Journal.

[READ: Shutdown Looming, Public Splits Blame on Obama, Congress]

The S&P 500 dropped 1.1 percent last week, marking its first weekly drop since August, according to Bloomberg.

 

If Congress cannot reach a deal on Monday, more than 800,000 federal workers with nonessential jobs, including those not key to national security, will face furloughs and millions of other paychecks could be delayed. A default on the federal debt might also occur within 30 days if Congress does not act, which could damage faith in the U.S. bond market and affect the savings of private investors and governments who rely on that security.

The U.S. Treasury is scheduled to ask investors for $120 billion in loans on Oct. 17. If the U.S. cannot pay its bills then those investors could demand higher interest rates, which have a ripple effect on the financial system and cause more expensive mortgages, auto loans and credit card bills, according to The Washington Post.

[READ: How Markets Misunderstand the Fed's 'Taper' Economy]

Congress worked to negotiate a deal all weekend, but on Sunday the House passed a bill that would keep the government running with an attachment that would defund President Barack Obama's Affordable Care Act, continuing an argument on funding for the law between House Republicans and Senate Democrats that could be difficult to resolve before the shutdown deadline of midnight Tuesday.

The last shutdown of the government lasted from Dec. 13, 1995, to Jan. 10, 1996, when the S&P 500 dropped 3.7 percent. The S&P 500 returned to rise by 10.6 percent by mid-Feb. 1996, according to a note by S&P Capital IQ cited in MarketWatch.

More News: