Stocks finished lower in light-volume trading Monday as the ongoing debt ceiling debates raised concerns of a possible U.S. ratings downgrade.
The Dow Jones Industrial Average fell 88.36 points, or 0.70 percent, to end at 12,592.80, led by Travlers and Boeing . The blue-chip index was was down almost 145 points at its session low.
The S&P 500 slipped 7.59 points, or 0.56 percent, to finish at 1,337.43.
The tech-heavy Nasdaq slid 16.03 points, or 0.56 percent, to close at 2,842.80.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, jumped above 19.
Despite the day's weakness, the three major averages still remain higher for the month of July.
Among key S&P sectors, by health care and telecom led the laggards, while utlities gained.
U.S. lawmakers continued the debt talks, increasing the threat of a ratings downgrade and possible default. Although many strategists expect a last-minute deal, many are increasingly worried that the stalemate will cause rating agencies to cut their stance on U.S. debt.
“There’s very little risk of a treasury default, but the larger risk resides in a possible downgrade,” said Brian Battle, vice president of trading at Performance Trust Capital Partners. “If treasurys aren’t AAA-rated, that impacts lending.”
“If the deal comes and if we are able to avoid a default, that’s good, but if the terms are temporary, back-loaded, or unrealistic, the rating agencies might take action,” he explained.
Meanwhile, there was some chatter that the Aug. 2 deadline may be more flexible than previously suggested. Barclays Capital said in a note that tax receipt inflows since July 14 have been stronger than expected, suggesting that the date on which the Treasury will run out of cash to pay its obligations might be around Aug. 10 instead.
Gold gained $10.70 to settle at $1,612 an ounceafter hitting a record high of $1,622.49 an ounce earlier as investors fled to the precious metal as a safe-haven play.
“Earnings are still the most important thing and as long as they hold up, the markets will hold up,” Jamie Cox, managing partner of Harris Financial Group told CNBC. “The market’s setting up for quite a bullish opportunity towards the end of the week because I think we’re going to have something concrete before this Aug. 2 deadline occurs.”