Wall Street battled the dual worries of a debt debacle in Washington and nearly non-existent economic growth Friday, sending major averages lower as the nation surged toward an ominous deadline.
Stocks were well off their lows for the session but still negative as hopes lingered for an 11th-hour deal to raise the $14.3 trillion debt ceiling and avoid what Obama administration officials describe as potential catastrophe.
Another round of strong earningsfailed to assuage investors worried over the country's direction.
"Dangerous, absolutely dangerous," is how Keith Springer, president of Springer Investment Advisory in Sacramento, Calif., described the state of markets. "The problem is the market reacts to two things, greed and fear. Right now there's no greed, in the air, it's all fear."
The stock market came off its morning lows on rumors of some halting progress in Washington on getting a debt ceiling deal hammered out.
The Nasdaq tech gauge actually turned briefly positive on wire service reports that Republicans were prepared to accept a short-term extension.
But those hopes were snuffed out fairly quickly as lawmakers held dueling news conferences and TV interviews suggesting that a deal remained elusive. Senate Majority Leader Harry Reid said Democrats would not agree to a short-term deal.
"You have both sides screaming and yelling like 2-year-olds," Springer said. "They're creating a lot of fear and if they don't have a deal by the end of today you're going to see the market sell off and probably be down 200 points by the end of the day."
Financials rallied on the whispers over a debt deal, but the rest of the S&P 500's 10 sectors remained negative.
At the same time, nearly all the stocks on the Dow 30 were lower, with Bank of America the only solid gainer. Merck was the worst performer, as earnings met analyst estimatesbut the company annouced substantial job cuts ahead.
While the Washington debt impasse generated some ill will, it was the government's first reading on economic growth that really hammered sentiment.
Gross domestic product for the second quarter came in at an anemic 1.3 percent, worse than the 1.8 percent expectation and likely to raise fears of a double-dip ahead. Moreover, the first quarter's already-weak reading of 1.9 percent was revised to a paltry 0.4 percent, suggesting an economy nearing a double dip despite trillions in liquidity from the Federal Reserve and government stimulus.
That added to an already pessimistic feeling after House of Representatives Speaker John Boehner failed to rally enough support for his plan to raise the debt ceiling before Tuesday’s deadline.
President Obama addressed the nation later in the morning, declaring the Boehner plan dead on arrival and encouraging citizens to pressure their lawmakersto get a deal done. The markets reacted little to the president's speech.
Reflecting the fear overall, gold prices surgedwhile prices of Treasurys also were sharply higher, sending the 30-year bond price up more than a point and the benchmark 10-year yield down to 2.85 percent.
The CBOE Volatility Index again ramped up, pushing toward 25, where it has not been since mid-March.
In other economic news, the University of Michigan consumer sentiment reading came in at 63.7, near consensus, while the Chicago Purchase Managers Index read 58.8, a bit lower than expected.
In earnings, Dow component Merck reported profit of 95 cents per share that met analyst estimates.
Fellow bluechip index member Chevron said it earned $3.85 a share, against expectations of $3.56, though revenue was a bit below estimates, sending shares slightly lower.
Elsewhere, Arch Coal posted earnings of 44 cents per share, well below Reuters estimates of 60 cents, sending shares down nearly 7 percent.
Amgen recorded a profit of $1.37 a share, beating estimates of $1.28, and its shares rose.
In deal news, Allied Healthcare Shares exploded 57 percent on news that it would be purchased by Saga Group for $3.90 a share.
