“The debt ceiling is a cause for concern,” Mike Sorrentino, who helps oversee about $3 billion as chief strategist at Global Financial Private Capital LLC, said by phone from Sarasota, Florida. “ If we can get through that and we can get through the dysfunction with this government, there will be a much safer road ahead.”
S&P stripped the U.S. of its AAA credit rating in August 2011 amid a stalemate between Obama and Congress over whether to raise the debt ceiling, and the S&P 500 fell more than 11% in three days.
The losses were later reversed, as the Federal Reserve pledged to hold the benchmark interest rate near zero and maintain bond purchases to support the economy. The S&P 500 gained 25% in the 12 months through August 2012.
The S&P 500 gained 0.7% in the first two days of the first partial government shutdown in 17 years, as investors speculated any economic effects from the impasse would be limited.
A stoppage 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.
Data today showed service industries in the U.S. expanded in September at a slower pace than forecast, indicating a pause in the momentum of the biggest part of the economy before the federal government closed.
The Institute for Supply Management’s non-manufacturing index fell to 54.4 in September from 58.6 the prior month. The median forecast in a Bloomberg survey called for a drop to 57. The figure includes industries that range from utilities and retail to health care, housing and finance and make up almost 90% of the economy.
A separate report 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 September payrolls report tomorrow as scheduled because of the shutdown.
Investors have been scrutinizing data to determine whether the Federal Reserve will curb bond purchases after its meeting this month. The S&P 500 rallied 4.7% in the third quarter, closing at a record on Sept. 18, as the central bank maintained stimulus measures and companies reported better-than- estimated earnings.
The Chicago Board Options Exchange Volatility Index, or VIX, rose 5.4% to 17.50 today, bringing its gain this week to 13%. The equity volatility gauge rose as much as 13% earlier, briefly erasing its loss for the year, and is on track for its highest close since June.
All 10 main S&P 500 industries retreated at least 0.2% today, with utility and industrial stocks sinking at least 0.9% to pace declines. Boeing Co. dropped 1.9% to $115.61 for the second-steepest slide in the Dow.
The Dow Jones Transportation Average dropped 1.1%, as FedEx Corp. plunged 1.6% to $113.40.