Wall Street slides on manufacturing
THE S&P 500 fell for a sixth day yesterday as time runs out for the government to pass a deal to avoid default and the economy showed further signs of stalling.
The market pared losses late in the day before Congress was expected to vote on a debt deal backed by the White House, which includes spending cuts of $2.4 trillion over 10 years.
The deadline for a deal, which includes raising the US borrowing limit, is midnight tonight.
“It’s an on-again, off-again market, and it reflects the on-again, off-again nature of these debt ceiling deliberations,” said Hugh Johnson, chief investment officer of Hugh Johnson Advisors LLC in Albany, New York.
“Investors now believe that the debt limit will be raised, that the vote will be positive in the Senate and positive in the House, but there’s still a bit of scepticism or caution.”
Stocks fell after the Institute for Supply Management said the US manufacturing sector grew at the slowest pace in two years in July. The ISM report followed similarly weak reports from much of Asia and Europe.
The defence and health care sectors, which would be subject to US budget cuts if a deal is not reached, were among the hardest hit. The iShares Dow Jones US aerospace and defence exchange traded fund fell 1.1 per cent while S&P’s healthcare index lost 1.7 per cent.
Healthcare stocks also fell after the Centers for Medicare & Medicaid Services said on Friday that it will cut payments to skilled nursing facilities by 11 per cent.
Kindred Healthcare fell 30 per cent and Skilled Healthcare lost more than 43 per cent.
The Dow Jones industrial average dropped 10.75 points, or 0.09 per cent, to 12,132.49. The Standard & Poor’s 500 Index fell 5.34 points, or 0.41 per cent, to 1,286.94. The Nasdaq Composite Index lost 11.77 points, or 0.43 per cent, to 2,744.61.
“Today’s trading has exposed the market. It apparently was hiding behind the ‘debt ceiling’ curtain, but now that that has been pulled back, we find that there are other problems – namely, the economy,” said Larry McMillan, president of McMillan Analysis Corp.
The S&P 500 rallied back above its 200-day after dipping sharply below that. The level has acted as strong support over the last two months and the fact that S&P 500 was able to rally back above it was a comfort to investors.