Retail stocks logged their sharpest drop since June on Wall Street today as President Obama warned that a “very deep recession” could be in the offing if lawmakers allowed the country to default on its debts.
The S&P 500 Retailing Industry Group fell 2 percent, or 16.57 points, to 826.48, leading the Dow Jones Industrial Average, which declined 1.1 percent, or 159.71 points, to 14,776.53. The Dow is now off more than 900 points since Sept. 18.
“Members of Congress and the House Republicans in particular do not get to demand a ransom in exchange for doing their jobs and two of their very basic jobs are passing a budget and making sure that America’s paying its bills,” Obama said at a White House news conference.
The federal government has been partially shut down for nearly eight days as some conservatives press Obama for changes to his signature healthcare overhaul. Markets had largely taken the shutdown in stride, but now investors are beginning to contemplate what would happen if Congress didn’t raise the debt ceiling.
The government is expected to run out of money by Oct. 17 without action by Congress. If that happened and the country might fall behind on its debt payments, sending a severe shock through the global economy, which depends on the reliability of Treasury debt.
“As reckless as a government shut down is, the economic shut down caused by America defaulting would be dramatically worse,” Obama said. “It would disrupt markets it would undermine the world’s confidence in America as the bedrock of the global economy and it might permanently increase our borrowing costs…. This is the credit worthiness of the United States that we’re talking about. This is our word. This is our good name. This is real.”
Although investors still see a default as unlikely, given the severe consequences of such a move, the uncertainly has been enough to spook markets, which already face a weaker economic backgroup. The International Monetary Fund cut its outlook for the global economy today. It now projects global economic growth this year of 2.9 percent, down 0.3 percentage points from its forecast in July.
The growth outlook for the U.S. economic stayed steady at 1.2 percent, while the outlook for the euro area fell to 1.6 percent, down 0.1 percentage point.
Among the stocks losing ground in the markets were Michael Kors Holdings Ltd., off 4.6 percent to $70.92; Aéropostale Inc., 4.2 percent to $8.95; Under Armour Inc., 3.8 percent to $76.35; PVH Corp., 3.3 percent to $117.69 and Burlington Stores Inc., 3.3 percent to $25.90.
Markets also lost ground in Europe.
London’s FTSE 100 fell 1.1 percent to 6,365.83 as Paris’ CAC 40 dropped 0.8 percent to 4,133.53, Frankfurt’s DAX decreased 0.4 percent to 8,555.89 and Milan’s FTSE MIB sank 0.3 percent to 18,372.75.
The euro traded at $1.36 while the pound fetched $1.61 and the Swiss franc, $1.11.
The region’s decliners included Kering, down 1.1 percent to 162.45 euros; Next, 1.5 percent to 49.55 pounds, and Marks & Spencer Group, which fell 3.4 percent to 4.64 pounds, after analysts at Bernstein downgraded the stock and said they had little faith in the turnaround at the clothing and general merchandise division.