Gridlock in Washington and a credit-rating scare for France brought sovereign debt to the fore — again — as investors on both sides of the Atlantic sold off shares and fretted over the larger economic picture.
On Wall Street, the S&P Retail Index fell 1.9 percent, or 9.70 points, to 515.01, as the Dow Jones Industrial Average retreated 2.1 percent, or 248.85 points, to 11,547.31.
In Europe — where Moody’s Investors Service raised questions about the future of France’s credit rating, given a growing budget deficit and higher borrowing costs — Milan’s FTSE MIB fell 4.7 percent to 14,509.94, as Paris’ CAC 40 dropped 3.4 percent to 2,894.94 and London’s FTSE 100 fell 2.6 percent to 5,222.60.
Salvatore Ferragamo SpA saw one of the steepest declines, slipping 9 percent to 10.46 euros, as Tod’s SpA fell 5.5 percent to 67.75 euros, Tiffany & Co. dropped 4.7 percent to $71.87, and LVMH Moët Hennessy Louis Vuitton dropped 3.8 percent to 108.15 euros. The euro was down slightly against the dollar at $1.35.
Investors feared the so-called “super committee” of Washington lawmakers would fail to reach a deal to reduce the deficit. That could trigger $1.2 trillion in automatic spending cuts to federal agency budgets over a 10-year period beginning in 2013.
“We’re coming to realize that nobody has the political will to make the decisions that maybe need to be made in order for us to extricate ourselves from this problem,” said Paul Nolte, managing director at investment firm Dearborn Partners. “We really don’t have a lot of [economic] growth that’s going to allow us to grow out of the debt problem. The end game is going to be very similar to what we’ve seen in Japan, where we wind up in a very low growth, noninflationary, even deflationary environment.”