- US enters third week of shutdown
- Agreement over debt ceiling remains elusive
- Lagarde warns of 'massive disruption' to global economy
Dow Jones: -0.48%
S&P 500: -0.49%
US stocks fell on Monday as an agreement over raising the debt ceiling remained elusive ahead of the Thursday deadline with the American government entering its third week in shutdown mode.
Wall Street benchmarks opened with losses of around 0.5% in morning trade, snapping a three-day winning streak, as hopes over an agreement to avert a default began to fade with just three days to go before the US hits its $16.7tn borrowing limit.
"If we go another 48 hours without a deal to avoid the debt ceiling being agreed, we could see the rate of selling pickup, and that comfort replaced with panic," said Market Analyst Craig Erlam from Alpari.
Senate Majority Leader Harry Reid said he held productive talks with Republican leader Mitch McConnell but they failed to reach a plan over the weekend. He said that the discussions were "substantive" and he's "optimistic about the prospects for a positive conclusion".
The Senate and House will meet in Washington on Monday to continue discussions, even though it is the Columbus Day federal holiday.
International Monetary Fund head Christine Lagarde has warned that a US default could send the globe into a recession. In a TV interview with NBC's Meet the Press she said: "If there is that degree of disruption, that lack of certainty, that lack of trust in the US signature, it would mean massive disruption the world over and we would be at risk of tipping yet again into recession."
Whilst developments in Washington continue to rock markets, investors will be keeping a close eye on the corporate earnings calendar which picks up towards the end of the week with Goldman Sachs and Bank of America in focus.
Micron continues to pull back
Semiconductor group Micron Technology slumped sharply for the second straight day following its fiscal fourth-quarter results last week. The company reported on Thursday that it swung to a profit of $1.71bn in the final quarter, compared with a loss of $243m the year. A number of analysts were cited as saying that the declines were as a result of profit-taking following a 160% surge for the stock since the start of 2013.
Wells Fargo on Friday downgraded its rating for Micron to 'underperform' from 'market perform'. The bank said that even after raising its estimates, its target price still stands below the current share price.
Merck, the pharmaceuticals firm, was trading in the red after saying it is talking with private-equity groups and investors to share the cost of some clinical trials. Both Bernstein and Barclays downgraded their ratings for the stock today, to 'market perform' and 'equalweight', respectively.
Handbag designer Coach was in the red after analysts at Canaccord Genuity downgraded the stock to 'hold', saying that the firm's 30% US market share could come under pressure from rising competition at rival Michael Kors.