Stocks fall as lawmakers remain at odds over debt

Stocks of small companies, especially, are being sold, and overall, stocks are falling

Richard Drew / AP
Specialist Michael Pistillo, left, calls out prices as he works at his post on the floor of the New York Stock Exchange Wednesday, July 27, 2011. Stocks have been falling since Friday.

NEW YORK (AP) — The biggest evidence yet that investors are concerned about keeping their money safe: they're selling stocks of small companies.

Those stocks usually fall much more than large-company stocks if the economy slows down or the stock market turns volatile. With the deadline for a debt deal less than a week away, the stocks that investors consider to be the riskiest are falling the most.

The Russell 2000 index, which tracks smaller U.S. companies, fell 2 percent Wednesday, far more than both the Dow Jones industrial average and the Standard & Poor's 500 index.

The Russell fell 16 points, or 2 percent, to 808.50 in afternoon trading. That was twice as much as the 0.9 percent decline in the Dow average, which lost 115 points to 12,385.

The S&P 500 index fell 19, or 1.4 percent, to 1,312. All 10 company groups that make up the S&P 500 fell. Utilities and telecommunications stocks, seen as the most stable, fell the least. The Nasdaq composite index dropped 59 points, or 2.1 percent, to 2,781.

The stock market has been sinking since last Friday as an Aug. 2 deadline for raising the U.S. borrowing limit approaches. With no sign of a compromise between Republicans and Democrats in Washington, investors are becoming more fearful that the U.S.'s triple-A credit rating could be lowered or that the country might default on its debt. Either event would raise interest rates across the board and slow down the already weak U.S. economy.

House Speaker John Boehner had planned to hold a vote on his debt-limit plan Wednesday. That was postponed after conservative lawmakers balked at the proposal and congressional budget officials said it would have cut spending less than advertised. The White House had also threatened to veto Boehner's plan.

"As hours pass and the uncertainty builds, I think the market is starting to price in the potential that we might not have a solution by Aug. 2," said Channing Smith, managing director of Capital Advisors Inc. "Confidence in our political system is beginning to fade."

The Dow is down 2.2 percent this week. It is headed for its biggest weekly decline since early June. The S&P 500 is also down 2.2 percent, and the Russell 2000 is down 4 percent.

Some analysts fear that if the debt issue is not resolved stocks could fall as much as they did in 2008, when the House of Representatives voted down a bill to create the Troubled Asset Relief Program on Sept. 29. On that day, the Dow plunged about 778 points. Four days later, Congress passed the TARP bill and President George W. Bush quickly signed it into law. The Dow then jumped as much as 946 points in a week.

Most investors still expect some kind of resolution in the coming days. But the uncertainty over possible changes to tax rates or government spending has made investors uneasy, said Todd Salamone, senior vice president of research at Schaeffer's Investment Research. "Investors just want a lot of clarity," he said.

A decline in orders for manufactured goods also pushed stocks lower. The government said orders for durable goods fell 2.1 percent in June because of a drop in demand for commercial aircraft, automobiles and heavy machinery. Manufacturing has been disrupted this year by parts shortages from Japan and higher energy prices.

Earnings results were mixed. Inc. rose 5.7 percent after the online retailer reported that its earnings and revenue were far higher than analysts were expecting.

Dunkin' Brands Group Inc. shot up 39 percent on the company's first day on the Nasdaq. The parent of Dunkin' Donuts and the Baskin-Robbins ice cream chain went public to help pay down its debt.

Juniper Networks Inc. plunged 20 percent, the most of any company in the S&P 500, after the computer networking equipment maker issued an earnings forecast that was lower than many analysts expected. Computer networking equipment companies, including Cisco Systems Inc., have struggled this year because many Internet providers spent heavily on their products in 2010. As a result, they don't need as much new equipment now. Cisco fell 3 percent, while equipment maker JDS Uniphase Corp. fell 6.3 percent.

Delta Air Lines Inc. fell 5 percent. The airline's earnings were lower than analysts had anticipated because of higher jet fuel expenses and costs related to voluntary buyouts for 2,000 workers.

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