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Wall Street stocks plummet as budget fight fears loom

NEW YORK — Washington’s budget fight jolted Wall Street yesterday (Sept 20), reminding it that the next few weeks could bring a lot of uncertainty.

Trader F Hill Creekmore works on the floor of the New York Stock Exchange on Sept 18, 2013. Photo: AP

Trader F Hill Creekmore works on the floor of the New York Stock Exchange on Sept 18, 2013. Photo: AP

NEW YORK — Washington’s budget fight jolted Wall Street yesterday (Sept 20), reminding it that the next few weeks could bring a lot of uncertainty.

Investors hate uncertainty, and stocks plunged in afternoon sell-off that wiped out all the gains from rally earlier this week, when the United States Federal Reserve kept its huge economic stimulus program intact.

Major indexes were mixed in morning trading, but turned lower around midday after the US House of Representatives voted to defund President Barack Obama’s health care law.

The vote itself wasn’t a surprise, but it reminded investors that the Republican-led House and the Democratic-controlled Senate are poised for a showdown over federal spending.

The debt ceiling must be raised by Oct 1 to avoid a government shutdown, and a potential default on payments, including debt, later in the month.

“What we’ve done is basically committed ourselves to two weeks of worry,” said Mr Sam Stovall, chief equity strategist at S&P Capital IQ.

The Dow Jones industrial average dropped 185.46 points, or 1.2 per cent, to close at 15,451.09 — 225 points below its all-time closing high reached Wednesday after the Fed’s announcement.

The Standard & Poor’s 500 index fell 12.43 points, or 0.7 per cent, to 1,709.91. The Nasdaq composite fell 14.66 points, or 0.4 per cent, to 3,774.73.

All 10 industry groups in the S&P 500 fell, led lower by telecom companies and utilities. The S&P also fell on Thursday, making this its first two-day decline in almost three weeks.

Until now, September defied the worriers. The stock market has bounced backed from an August swoon, despite a calendar loaded with potential rally killers.

Fears of a conflict with Syria have faded, and Wall Street cheered when Mr Larry Summers withdrew his name as a candidate to replace Federal Reserve chairman Ben Bernanke.

Mr Summers, a former Treasury secretary, was viewed as being more likely to rein in the Fed’s massive stimulus program, which has kept interest rates low and boosted corporate profits.

As Middle East strife recedes from investors’ minds, though, fears of budget gridlock grow.

“Geopolitics ... is much lower on the list. It’s not off the list” of investor worries, said Mr David Darst, chief investment strategist for Morgan Stanley Wealth Management. “No 1 becomes the debt ceiling and the federal spending debate.”

In corporate news, BlackBerry plunged US$1.79 (S$2.24), or 17 per cent, to US$8.72 on the Nasdaq after announcing a loss of nearly US$1 billion and layoffs of 4,500 workers. The company’s phones have been eclipsed by phones from Apple and Samsung.

Apple fell US$4.89, or 1 per cent, to close at US$467.40 as its newest iPhone debuted at stores.

Darden, the struggling parent of Olive Garden and Red Lobster, fell US$3.52, or 7 per cent, to US$45.78 after posting a much lower quarterly profit and saying its president and chief operating officer will retire. Sales fell at its two flagship restaurant chains despite efforts to renew menus and advertising.

Two new stocks had strong debuts. Tech security company FireEye surged US$16, or 80 per cent, at end at US$36, and artificial intelligence company Rocket Fuel rose US$27, or 93 per cent, to US$56.10.

The yield on the 10-year Treasury note fell to 2.74 per cent, from 2.76 per cent on Thursday. AP

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