U.S. stocks fall as Congress makes little progress on shutdown

U.S. stocks fell for a second day as investors weighed an increase in jobless claims and lawmakers made little progress on ending the federal shutdown.

The S&P 500 (CME:SPZ13) lost 0.2% to 1,689.83 at 9:32 a.m. in New York.

“What we are starting to realize today especially is that this might go on for a while,” Mike Sorrentino, who helps oversee about $3 billion as chief strategist at Global Financial Private Capital LLC, said by phone from Sarasota, Florida. “The debt ceiling is a cause for concern. If we can get through that and we can get through the dysfunction with this government, there will be a much safer road ahead.”

The S&P 500 has gained 0.7% since the first partial shutdown of the federal government in 17 years began Oct. 1, as investors speculated any economic effects from the impasse would be limited.

The gauge trimmed earlier losses yesterday after Obama met with financial leaders at the White House and summoned congressional leaders for the first face-to-face talks since the standoff began. The meeting last night with lawmakers yielded no results, leaving as many as 800,000 federal employees on unpaid leave.

A partial shutdown lasting one week would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists in a Bloomberg survey, with the costs accelerating if the closure persists.

Debt Ceiling

The standoff raises concern the budget dispute may affect talks to increase the $16.7 trillion debt ceiling this month.

The Treasury has said measures to avoid exceeding the borrowing limit will be exhausted by Oct. 17. The U.S. won’t have enough money to pay all of its bills at some point between Oct. 22 and Oct. 31 without action by Congress, according to the Congressional Budget Office.

“The real test will be the debt ceiling,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “Here the government really cannot afford to not increase it in due time.”

Data today from the Labor Department showed fewer Americans than forecast filed applications for unemployment benefits last week, indicating U.S. employers were maintaining staff counts in the days leading up to the government shutdown.

The Labor Department will not release its monthly unemployment report tomorrow as scheduled because of the shutdown.

Economic Data

A report at 10 a.m. New York time may show that the Institute for Supply Management’s non-manufacturing index fell to 57 in September, from 58.6 in August, according to the median forecast of 75 economists in a Bloomberg survey.

Investors continue to watch data to determine whether the Federal Reserve will trim its monthly bond buying at its next meeting this month. The S&P 500 rallied 4.7% in the third quarter as the central bank maintained stimulus measures and companies reported better-than-estimated earnings. The gauge has surged 19% in 2013, on course for the biggest gain in four years.

A Bloomberg index that tracks 70 companies that get at least 3.5% of their revenue from federal contracts fell 7% Sept. 30 as the shutdown neared.

United Technologies Corp., a supplier of helicopters and jet engines to the military, said the impasse will force it to lay off as many as 5,000 employees. The first effect will be layoffs for about 2,000 Sikorsky Aircraft employees in Connecticut, Florida and Alabama on Oct. 7, the contractor said yesterday.

UTC receives about 18% of its revenue from the government, Chief Financial Officer Gregory Hayes told analysts this week. Its shares slid 2.2% yesterday.

“The comments made by United Technologies will be a good proxy for what to expect,” Nigg said. “Most companies will most likely continue to provide very cautious guidance in general, and the shutdown isn’t helping.”

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