U.S. stocks drop on default concern amid debt-limit deadlock

U.S. STOCKS FELL Monday as Congress remained locked in debate over the budget and raising the national debt ceiling. According to the Congressional Budget Office, the U.S. will run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31. / BLOOMBERG FILE PHOTO/TIM BOYLE
U.S. STOCKS FELL Monday as Congress remained locked in debate over the budget and raising the national debt ceiling. According to the Congressional Budget Office, the U.S. will run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31. / BLOOMBERG FILE PHOTO/TIM BOYLE

NEW YORK – U.S. stocks fell, after the first back-to-back weekly decline since August for the Standard & Poor’s 500 Index, as lawmakers remained deadlocked over extending the nation’s debt limit to avoid a default.

Bank of America Corp. and Wells Fargo & Co. paced declines among banks, each slipping 1.1 percent. Alcoa Inc., which is scheduled to release third-quarter results tomorrow, lost 1.2 percent. International Business Machines Corp. dropped 1 percent as Barclays Plc advised investors to pare holdings.

The S&P 500 fell 0.7 percent to 1,678.70 at 10:05 a.m. in New York. The Dow Jones Industrial Average declined 121.18 points, or 0.8 percent, to 14,951.40. Trading in S&P 500 stocks was 13 percent below the 30-day average during this time of day.

“Every day that passes makes it potential for a policy mistake to be that much greater,” Darren Bagwell, director of research at Thrivent Asset Management in Minneapolis, said in a phone interview. His firm oversees about $82 billion. “One of the ironies of the market holding in as well as it has is that it has not exerted the type of pressure on Washington like we got a couple years ago.”

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Speaker John Boehner said yesterday in an interview on ABC’s “This Week” that the House of Representatives can’t pass a debt-ceiling increase without packaging it with other provisions. Boehner said the country could default if President Barack Obama doesn’t negotiate. The Obama administration has said it won’t negotiate over funding the government or raising the debt ceiling, arguing that it is part of the basic functions of Congress and shouldn’t be used as points of leverage.

Pay bills

Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office. The House and Senate weren’t in session yesterday and there were no meetings planned between the two sides.

The S&P 500 is down 0.2 percent this month as lawmakers failed to pass a budget, causing a partial shutdown of the government. Three rounds of Federal Reserve stimulus have helped drive the gauge up 150 percent from a 12-year low in 2009. The benchmark index has rallied 18 percent this year on better-than- estimated earnings and as data from manufacturing to housing and the labor market improved.

U.S. earnings season starts tomorrow with Alcoa, America’s biggest aluminum producer, scheduled to release third-quarter results after the market closes.

Earnings estimates

Profits for the broad index probably increased 1.7 percent during the third quarter while sales rose 2.2 percent, according to analysts’ estimates compiled by Bloomberg. Analysts expect earnings growth to accelerate to 8.9 percent in the final three months of the year, the data show.

“Some people are a little nervous that companies are going to use the excuse of the uncertainty in Washington yet again as to why they don’t have to or why they’re not going to perhaps be as optimistic about the fourth quarter and 2014 as the estimates currently reflect,” Bagwell at Thrivent said.

Alcoa slipped 1.2 percent to $7.87 as Morgan Stanley analyst Paretosh Misra downgraded the shares to equal-weight from overweight, citing a weaker outlook for aluminum prices. Alcoa’s profit probably doubled during the quarter to 6 cents a share amid higher demand from the aircraft and automotive industries, according to analysts’ estimates compiled by Bloomberg.

Bank of America fell 1.1 percent to $13.90. Wells Fargo, the largest U.S. home lender, dropped 1.1 percent to $40.84.

IBM downgrade

IBM, the world’s largest computer-services provider, retreated 1 percent to $182.35. Barclays downgraded its recommendation on the shares to equal weight, or hold, from overweight, or buy. The brokerage cited concern that IBM’s cash flow may be affected as customers move to online-based software. IBM shares have fallen 4.8 percent this year.

Cooper Tire & Rubber Co. sank 11 percent to $26.31. Apollo Tyres Ltd. is seeking to cut its $2.5 billion offer to buy Cooper after U.S. and Chinese workers challenged the takeover plan. Cooper acknowledged the $35-a-share offer should be reduced and that “the issue now is by how much,” Gurgaon, India-based Apollo said in a statement yesterday.

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