Stocks fall on concern about economy, budget fight

NEW YORK (AP) — Concerns about the strength of the economy and the potential for a budget fight in Washington weighed on the stock market Monday.

The Dow Jones industrial average was down in afternoon trading, putting it on track for a third straight day of losses.

The Dow jumped 147 points last Wednesday to close at an all-time high after the Fed decided to keep its huge economic stimulus program intact. But that rally has been wiped out by anxiety over a budget and debt fight in Washington over the past three days.

Investors initially cheered the Fed’s surprise decision to keep its stimulus in place because it has helped add to a bull run in stocks dating back to March 2009.

Doubts have crept in, however, as investors digest the news that the central bank thinks the economy isn’t strong enough for a reduction in its bond buying.

“At first blush (the stimulus) looks positive,” said Kate Warne, an investment strategist at Edward Jones, a financial advisor. “But at second blush it says conditions weren’t as strong as we were previously thinking. Markets are now responding to that.”

The Fed is buying $85 billion in bonds each month to hold down long-term interest rates and encourage borrowing and spending.

On Monday, the S&P 500 index dropped seven points, or 0.4 percent, to 1,702 as of 3:55 p.m. The index is at almost exactly the same level it was as before the Fed’s statement was released last Wednesday.

The Dow fell 42 points, or 0.3 percent, to 15,409. The Nasdaq composite fell six points, or 0.2 percent, to 3,767.

Financial stocks fell the most among the 10 industrial groups in the S&P 500 index. Investors sold on concerns that earnings would be hurt by lower trading volumes of bonds and foreign currencies at investment banks.

Citigroup fell $1.54, or 3 percent, to $49.64 after the Financial Times reported that the bank had suffered a “significant decline” in trading revenues that would crimp its earnings.

Goldman Sachs, which began trading on the Dow Monday, also fell. The stock slipped $4.16, or 2.5 percent, to $165.60.

The threat of a looming political showdown over the budget also weighed on investors.

The U.S. House of Representatives voted to defund President Barack Obama’s health care law on Friday, a gesture that reminded Wall Street that the Republican-led House and the Democratic-controlled Senate are poised for a showdown over 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.

“There seems to be a higher probability there will be more of a battle over that,” said Scott Wren a senior equity strategist at Wells Fargo Advisors. “That could inject some volatility into the market.”

Apple rose the most in the S&P 500 after shoppers snapped up 9 million of its newest iPhones following a rollout of the devices on Friday. Apple surged $22.75, or 4.9 percent, to $490.20.

Shares of the troubled smartphone maker Blackberry rose 1.1 percent to $8.82 after financial company Fairfax Financial Holdings offered to buy the company in a deal valued at $4.7 billion.

The company’s stock had been trading about 5 percent lower before the deal was announced. Blackberry plunged Friday after the company announced a loss of nearly $1 billion and layoffs of 4,500 workers.

Along with Goldman Sachs, Nike and Visa began trading on the 30-member Dow on Monday, replacing Alcoa, Bank of America and Hewlett-Packard.

The Standard and Poor’s 500 index is up 19 percent for the year. If the index closed the year at its current level it would log its best gain since 2009, when it rose 23 percent.

In government bond trading, the yield on the 10-year Treasury note fell to 2.71 from 2.74 percent.

In commodities trading, the price of oil fell $1.16, or 1.1 percent, to $103.59 a barrel. The price of gold fell $5.50, or 0.4 percent, to $1,327 an ounce.

The dollar rose against the euro and fell against the Japanese yen.

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