NEW YORK – Investors sold stocks across the board Thursday as a federal government shutdown dragged into a third day and the United States inched toward a deadline on raising the nation’s borrowing limit.
The Dow Jones industrial average fell nearly 200 points by late morning as Republicans and Democrats appeared no closer to ending the budget impasse. In a speech, President Obama said that there was only one way out of the shutdown: “Congress has to pass a budget that funds our government with no partisan strings attached.”
Investors also got some disappointing economic news Thursday.
The Institute of Supply Management said that sales fell sharply, new orders dipped and hiring weakened at U.S. service companies. The report covers industries including retail, construction, health care and financial services.
Stock losses Thursday marked an acceleration of gradual declines over the last two weeks. Stocks have fallen for eight of the last 10 days as investors anticipated that negotiations over federal spending would fail. If the shutdown persists, the weak economic recovery could falter.
The Treasury Department said Thursday that the economy could plunge into a downturn worse than the Great Recession if Congress failed to raise the debt ceiling by Oct. 17 and the country defaulted on its debt obligations. A missed U.S. debt payment could cause credit markets to freeze, the value of the dollar to plummet and U.S. interest rates to skyrocket, the Treasury report said.
A default “would be so catastrophic and such a self-inflicted wound that you can’t imagine we would let it happen,” said Maury Fertig, chief investment officer of Relative Value Partners. “But the fact is that every day we get closer to it the possibility increases, even though it’s remote.”
The Dow fell 136.66 points, or 0.9 percent, to 14,996.48, its biggest decline since Sept. 20. It was down as much as 186 earlier. The Standard & Poor’s 500 index dropped 15.21 points, or 0.9 percent, to 1,678.66. The Nasdaq composite fell 40.68 points, or 1.1 percent, to 3,774.34.
Defense companies, which rely on government contracts for much of their revenue, fell. Lockheed Martin dropped $2.25, or 1.8 percent, to $122.80. The stock has fallen 5.4 percent in the last five trading days.
Tesla Motors fell $7.64, or 4.2 percent, to $173.31, after the electric car company had a rare downgrade from a financial analyst and on news of a fire involving one of its cars.