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.”
Techs were among the day's biggest gainers, largely helped by Apple after the iPod maker broke above $400 a share for the first time. The stock has climbed more than 20 percent so far this year. The company is 13 percent away from topping ExxonMobil as the largest company in the world.
Large tech stocks Hewlett-Packard and Microsoft were also higher.
However, Research In Motion slipped after the BlackBerry maker announced it is cutting 2,000 jobs as part of a cost savings plan.
Among earnings, Kimberly-Clark declined after the Kleenex maker said 2011 earnings might come in toward the lower end of its forecast, even as the company beat earnings expectations.
Baker Hughes edged slightly higher after the oilfield services company posted better-than-expected earnings, driven by strong U.S. drilling activity and rising profit margins outside North America.
Texas Instruments and Netflix are slated to report earnings after the bell.
On Tuesday, BP, Deutsche Bank, Ford, 3M and UPS are among the most notable companies expected to post earnings before-the-bell.
E-Trade rallied to lead the S&P 500 gainers following news that TD Ameritrade is planning to discuss the possibility of acquiring the rival online-brokerage firm.
United Technologies slipped slightly after the Wall Street Journal reporting the company is considering a partial sale or other strategic option for its rocket-engine business.
Volume was light with the consolidated tape of the NYSE at 3.14 billion shares, while 764 million shares changed hands on the floor.
At least eleven companies are scheduled to start trading this week, marking the biggest IPO week since November 2007. Among notable names, Dunkin' Brands plans to sell 22.3 million shares at a price range of $16 to $18 and will trade under the ticker "DNKN."
European shares declined, led by banks, after Moody's downgraded Greece's rating by three notches to "Ca," just one notch above default. With the latest downgrade, Greece holds the lowest rating of any country in the world covered by the rating agency.
On Tap This Week:
TUESDAY: S&P Case-Shiller home price index, consumer confidence, new home sales, Richmond Fed survey, 2-yr note auction; Earnings from BP, Deutsche Bank, Ford, GlaxoSmithKline, 3M, UBS, UPS, US Steel, Amazon.com, Electronic Arts
WEDNESDAY: Weekly mortgage apps, durable goods orders, oil inventories, 5-yr note auction, Beige Book; Earnings from Boeing, ConocoPhillips, Aetna, AutoNation, Delta, Dow Chemical, Aflac, Symantec, Visa, WholeFoods
THURSDAY: Weekly jobless claims, pending home sales, Kansas City Fed survey, Richmond Fed Lacker speaks, 7-yr note auction, San Francisco Fed Williams speaks, money supply; Earnings from AstraZeneca, Credit Suisse, DuPont, ExxonMobil, Royal Dutch Shell, Sanofi, Bristol-Myers Squibb, DR Horton, Kellogg, Motorola Solutions, Sprint, Time Warner Cable, Chesapeake Energy, MetLife, Motorola Mobility, Starbucks
FRIDAY: Employment cost index, GDP, Chicago PMI, consumer sentiment, farm prices; Earnings from Chevron, Merck
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