Wall Street limped to its worst weekly loss in a year as concerns over the stalled debt talks in Washington finally took a noticeable toll on the markets.
The Dow Jones industrial average, a basket of 30 blue-chip stocks, ended the week down 4.2 percent, while the Standard & Poor’s 500-stock index, a broader measure of the market, tumbled 3.92 percent. The Nasdaq, a more tech-heavy index, ended the week down 3.58 percent.
The declines marked the single-worst weekly performance for the Dow Jones and the S&P in the past year and also capped three straight months of declines for both indexes — the longest stretch of consecutive monthly losses since the fall of 2008.
Analysts blamed the slide on the ongoing uncertainty over Washington’s debt negotiations, which have reached a do-or-die moment ahead of Tuesday’s deadline to raise the country’s borrowing limit or risk default.
“It seems like everybody was on autopilot until this week,” said Wayne Kaufman, chief market analyst at brokerage firm John Thomas Financial in New York. “And then, over the last five days, we’ve had an extreme degree of selling pressure . . . at levels that are actually very rare to see.”
As investors sold stocks, they headed toward safer investments. Gold, traditionally regarded as a reliable store of value during turbulent times, hit an all-time high Friday, topping $1,628 per Troy ounce.
And yields on the government’s 10-year Treasury note fell to 2.79 percent, the lowest level this year. A lower yield indicates investors are willing to accept a smaller return in exchange for the safety of holding U.S. debt, despite the uncertainty over the government’s possible default if a debt deal is not reached by Tuesday.
“We’re seeing all the usual suspects in a defensive move as people raise cash and move out of the market,” said Marc Pado, U.S. market strategist at trading firm Cantor Fitzgerald in San Francisco.
Pado added that investors were apprehensive about buying stocks ahead of Tuesday’s deadline because they did not know whether a debt deal would be reached over the weekend. “It’s a coin toss,” Pado said.
But markets are also leaning lower because, no matter what Congress ends up doing, it will be a net negative for economic growth, Pado said. That’s because, in order to raise the country’s borrowing limit, Congress needs to also agree on savings by either increasing taxes or cutting spending.
“It doesn’t really matter which side of the equation you attack,” Pado said, “it’s going to hurt jobs.” Unemployment, at 9.2 percent, has already increased for three months straight.
Markets also got a reminder of the weak economy when the Commerce Department released data Friday showing that the gross domestic product, the broadest measure of economic activity, grew only 1.3 percent in the past three months, well below many economists’ expectations of 1.8 percent. Commerce also revised its January-to-March growth figures to 0.4 percent instead of 1.9 percent.
The data sent major stock indexes down close to 1 percent in early morning trading. But a mid-morning speech by President Obama raised hopes that he and Congress would find a way to agree on a deal to reduce spending and lift the country’s borrowing limit by Tuesday’s deadline.
Markets soon brushed off that optimism and swung to a loss late Friday. The Dow ended the day down 0.79 percent, while the S&P slid 0.65 percent and the Nasdaq lost 0.36 percent.
Oil also fell in Friday’s trading, tumbling 1.8 percent to $95.70 per barrel. That’s down nearly 4 percent since last week, when oil was trading near $100 per barrel.
A decrease in oil prices could be a boon for the economy, because lower oil costs mean cheaper prices at the gas pump and more money for consumers to spend. But analysts caution that markets aren’t ready to pay attention to anything other than Washington until Tuesday’s deadline.
“The focus of attention is solely on the debt ceiling,” said Bruce Bittles, chief investment strategist at investment advisory firm Robert W. Baird in Nashville.