U.S. stocks fell for the week, sending benchmark indexes to their first back-to-back retreat since August, as lawmakers struggled to end a budget impasse and avoid a default on the federal debt.
The Standard & Poor’s 500 Index recovered almost all of its losses in the final session of the week as optimism grew that a deal would be reached. United Technologies Corp. tumbled 4.7 percent, pacing losses among companies that get revenue from federal contracts. Health-care stocks rallied, led by a 14 percent jump in Tenet Healthcare Corp., as open enrollment began for the new exchanges mandated by the Affordable Care Act.
The S&P 500 slipped 0.1 percent to 1,690.50 over the five days. The index declined for a second straight week, a stretch not seen since the period ended Aug. 16. The Dow Jones Industrial Average sank 185.66 points, or 1.2 percent, to 15,072.58 for the week.
“The movement in the market suggested there is not a lot of fear,” Jeffrey Lancaster, a principal of San Francisco-based Bingham, Osborn & Scarborough, said in a phone interview. His firm manages about $3 billion. “We look back at the last couple shutdowns and what we learned is that these things are going to be ironed out.”
The government began on Oct. 1 its first shutdown in 17 years, placing as many as 800,000 federal employees on unpaid leave and closing some services, after lawmakers failed to reach an agreement on budgets before the start of a new fiscal year.
The action delayed the release of the Labor Department’s monthly payrolls report, which was due on the last day of the week. The lack of data is making it harder for Federal Reserve policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.
The S&P 500 jumped to a record on Sept. 18 as the central bank unexpectedly refrained from reducing its $85 billion monthly bond-buying program, saying it wants more evidence of an economic recovery before scaling back stimulus.
Three rounds of Fed stimulus have helped drive the S&P 500 up 150 percent from a 12-year low in 2009. The benchmark index ended the third quarter with a 4.7 percent gain, and has rallied 19 percent for the full year as data from manufacturing to housing and the labor market improved.
The budget impasse has raised concern that lawmakers will be unable to make progress on a deal to increase the debt limit. The Treasury has said measures to avoid exceeding the $16.7 trillion cap will be exhausted by Oct. 17. A default could have catastrophic consequences that might last decades, the department said on Oct. 3.
“The government shutdown and potential debt debacle part 2 may throw a monkey wrench into the recovery,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., which oversees about $645 billion in assets, said in an Oct. 3 interview.
S&P stripped the U.S. of its AAA credit rating in August 2011 amid a stalemate between President Barack Obama and Congress over whether to raise the debt ceiling. The S&P 500 fell more than 11 percent in three days.
The losses were later reversed, as the Fed (FDTR) pledged to hold the benchmark interest rate near zero and maintain bond purchases to support the economy. The S&P 500 gained 25 percent in the 12 months through August 2012.
“Investors are saying today, ‘I’m not worried about this,’” said Lancaster. “People have been confident for the last three to five years and their blessed confidence has been justified in that every time things have started to look remotely troublesome, some central banks have intervened in a very supportive way.”
The political wrangling over the debt ceiling may make chief executive officers more pessimistic about their companies’ outlook when they announce results in coming weeks, according to Matthew McGeary, a Stowe, Vermont-based fund manager with Eagle Asset Management.
Alcoa Inc. and JPMorgan Chase & Co. are among 10 S&P 500 companies that are scheduled to report earnings in the coming week. Profits for the broad index probably increased 1.7 percent during the third quarter while sales rose 2.2 percent, according to analyst estimates compiled by Bloomberg.
“Growth is pretty moderate and mediocre,” McGeary said in an Oct. 3 interview. Eagle Asset oversees $27.8 billion “If you layer on what’s happening in Washington, and the potential for more disruptions, management teams are going to be fairly cautious in their tone.”
The Chicago Board Options Exchange Volatility Index (VIX), the gauge of S&P 500 options prices known as the VIX, climbed 8.3 percent to 16.74 for the week. The measure has surged 48 percent from its 2013 low in March.
Seven out of 10 main industries in the S&P 500 fell as consumer staples, industrial and utility companies dropped more than 0.7 percent for the worst performance.
A Bloomberg index that tracks 70 companies that get at least 3.5 percent of their revenue from federal contracts plunged 7.1 percent, the most since September 2011.
United Technologies lost 4.7 percent to $104.27. The military contractor said an extended government shutdown would force it to lay off as many as 5,000 employees. The contractor receives about 18 percent of its revenue from the government, Chief Financial Officer Gregory Hayes told analysts.
Lockheed Martin Corp. slumped 5.2 percent to $122.50. The largest defense contractor said it has identified about 3,000 employees for furloughs on Oct. 7.
An S&P index of homebuilders dropped 3.3 percent, the most since Aug. 9, as the National Association of Home Builders lowered its forecast for U.S. single-family home starts this year and next on concern higher interest rates will slow the pace of growth in the housing market.
D.R. Horton Inc. slipped 5.6 percent to $18.54 while Toll Brothers Inc. retreated 4.1 percent to $31.04.
Eli Lilly & Co. dropped 4.2 percent $48.38 after the drugmaker said it would be “challenging” for it to meet its 2014 sales target.
Coca-Cola Co. lost 3.1 percent to $37.20. The world’s largest soda maker had its 2014 earnings estimate cut to $2.20 a share from $2.27 by JPMorgan Chase & Co. because of the company’s hedged yen positions.
J.C. Penney (JCP:US) Co. slumped 13 percent to $7.86 for the biggest loss in the S&P 500. Shareholder Perry Capital LLC sold about half of its stake in the struggling retailer after the company announced a share offering that diluted investors. J.C. Penney has tumbled 60 percent in 2013.
Health-care providers rallied 0.9 percent as a group, the most among 10 S&P 500 industries, as Obamacare health-insurance exchanges designed to provide plans for some of the 48 million uninsured Americans opened Oct. 1.
Tenet (THC:US) Healthcare jumped 14 percent to $46.10. WellPoint Inc., a health benefits company, climbed 3.9 percent to $87.21.
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