The threat of a US federal government shutdown next week in a budget battle hung over Wall Street, leaving the Dow and the S&P 500 lower for the week.
Concerns rose as the deadline for a budget deal neared, with a divided US Congress heading down to the wire to find a plan for funding operations on the start of the next fiscal year on Tuesday.
For the week, the Dow Jones Industrial Average lost 192.85 points (1.25 percent) to end on 15,258.24, snapping a three-week winning streak, while the broad-based S&P 500 fell 18.16 (1.06 percent) to 1,691.75. The only gainer was the tech-rich NASDAQ Composite Index, which tacked on a modest 6.86 (0.18 percent) to close at 3,781.59.
Analysts said the week’s trade reflected unease at the uncertainty surrounding the budget situation, even as most observers predicted a deal to avoid a shutdown.
“Most people believe Congress will come to some sort of 11th-hour resolution,” said Sam Stovall, chief investment strategist at Standard & Poor’s Capital IQ.
Still, Stovall likened the certainty in US markets about a budget deal to their consensus earlier in the month that the US Federal Reserve would begin to scale back its bond-buying program. However, the market was wrong about the Fed.
A mistake in perception about a budget deal “could cause markets to drop precipitously because the unexpected occurred,” Stovall said.
A congressional deal is still the most likely scenario, said Art Hogan of Lazard Capital Markets, but “in the back of most traders’ minds is ‘what if?’” he added.
With such uncertainty, investors were reluctant to buy stock heading into the weekend, he added.
Economic news in the week was mixed. The Case-Shiller Index of home prices showed prices continued to rise in July, but at a lower rate than seen previously, while US pending home sales fell for the third month in a row.
Washington confirmed that second-quarter growth reached at an annual rate of 2.5 percent, the same as its previous estimate, while US jobless claims fell.
Corporate highlights included news from Apple Inc that sales in the launch weekend of its latest iPhones reached a record 9 million. US banking behemoth JPMorgan Chase edged toward a possible settlement with the US Department of Justice over several investigations into the bank’s sale of mortgage-backed securities.
The week ahead features construction spending and industrial orders data, as well as the Institute for Supply Management’s readings on manufacturing and service sector activity.
The most closely watched event will be Friday’s jobs and unemployment report for this month, but the week’s data could take a back seat to the showdown in Washington.