Debt again weighs stocks down
With investors worried on both sides of the Atlantic, the safe harbor of gold topped $1,600 for the first time.
Stock prices fell Monday, pushing the Standard & Poor's 500 Index to its worst seven-day period in more than a month, amid concern lawmakers in Washington will fail to reach a deal on the nation's debt limit.
Financial shares slumped the most among 10 S&P 500 industry groups.
Gold's reputation as a safe haven for money sent it above $1,600 for the first time.
Investors are worried about debt problems on both sides of the Atlantic. So they bid gold up $12.30 an ounce Monday to settle at $1,602.40. That's a record for the market price for gold but below its 1980 peak after adjusting for inflation. An ounce of gold at that time cost $850, or about $2,400 in today's dollars.
The S&P 500 lost 10.70, or 0.81 percent, to fall to 1,305.44, the lowest since June 28. During the last seven trading sessions, the index has dropped 3.5 percent.
The Dow Jones industrial average slumped 94.57 points, or 0.76 percent, to 12,385.16. A default by the United States would cause more panic than the collapse of Lehman Bros. Holdings in September 2008, former Treasury Secretary Larry Summers told CNN in an interview broadcast over the weekend.
"It looks like more partisan fighting is delaying any debt-ceiling resolution," Larry Peruzzi, senior equity trader at Cabrera Capital Markets Inc. in Boston, wrote in an e-mail. "Words being thrown around like 'catastrophe' and 'Armageddon' are certainly not soothing investors' confidence."
House Speaker John A. Boehner (R., Ohio) said his party would not accept any tax increases as he worked on a deal to lower the federal budget deficit. As negotiators near the Aug. 2 deadline for raising the $14.3 trillion U.S. debt ceiling, President Obama is pushing to close tax loopholes for the richest Americans and corporations and cut discretionary spending by government.
The Lehman bankruptcy prompted the biggest collapse of global financial markets since the Great Depression. It drove the S&P 500 down 46 percent between September 2008 and March 2009. The index dropped 2.1 percent last week amid concern that the debt crisis in Europe was spreading and that American lawmakers were putting the nation's top credit rating in jeopardy.
Equities declined today as Goldman Sachs Group Inc. economists led by Jan Hatzius, based in Germany, cut their forecasts for real U.S. economic growth to 1.5 percent in the second quarter and 2.5 percent in the third quarter, from 2 percent and 3.25 percent, respectively.
Bank of America Corp., the Charlotte, N.C., bank, fell the most among the 30 stocks in the Dow, sinking 2.8 percent to $9.72.
The 81-member S&P 500 Financials Index, which lost the most last week since Nov. 12, retreated 1.4 percent.
After the market closed, IBM raised its income guidance for the year as earnings in the latest quarter increased 8 percent because of growth in all three of its major product categories.
The results show the strength of the 100-year-old company's efforts to link its mainframes and other computing hardware with its newer businesses, software, and services. Those two categories bring in the bulk of IBM's income.
Net income was $3.66 billion, or $3 per share, in the second quarter compared with $3.39 billion, or $2.61 per share, a year ago. Excluding special items, IBM earned $3.09 per share, ahead of the $3.02 per share analysts expected.
Revenue increased 12 percent to $26.7 billion.