NEW YORK — A White House threat to veto legislation that would avert a debt default pushed stocks lower Tuesday.
Major indexes were already down for the day when the White House said it would object to a Republican plan in the House of Representatives that calls for raising the debt limit by $1 trillion. The plan would require the debt issue to be voted on again next year, something President Barack Obama does not want.
“Each day they fail to come to an agreement is bringing in some nervous selling pressure. It’s very distracting for investors who don’t know how to position themselves,” said Marc Pado, U.S. market strategist at Cantor Fitzgerald. “Earnings and the economy, that’s what I’d rather talk about, but we can’t focus on that with such an overwhelming negative out there.”
Analysts say a U.S. default would have a devastating effect on financial markets. The U.S. would probably lose its triple-A credit rating, causing interest rates to soar. Stocks could plunge.
Paul Zemsky, chief investment officer of multi-asset strategies at ING Investment Management, said a default could also cause Americans to lose confidence in the economy, leading them to put off major purchases such as cars and homes.
“Anything that shakes confidence right now is just bad for the economy,” Zemsky said. “And this is just a big confidence-shaker.”
The Dow Jones industrial average fell 91.50 points, or 0.7 percent, to 12,501.30. The Dow was already down 40 points in afternoon trading and lost another 50 after the White House threatened to veto the House legislation. It was the Dow’s third straight day of losses.
The Standard & Poor’s 500 index fell 5.49 points, or 0.4 percent, to 1,331.94. Eight of the 10 company groups that make up the index fell. Only the technology and telecommunications sectors rose.
The Nasdaq composite fell 2.84, or 0.1 percent, to 2,839.96. Technology companies rose after Broadcom raised its revenue forecast for the third quarter on improving demand for its chips.
MarketWatch contributed to this report.
