As the political struggles intensify in Washington and the August 2nd deadline approaches for the U.S. to hit its borrowing limit, the financial sector is taking a significant hit.
Last week, U.S. stocks posted their worst performance in a year. Friday was the sixth straight day of losses for the Dow Jones Industrial Average, which fell 537.92 points or 4.24%, for the week, to 12,143.24, the largest weekly drop in percentage terms since July 2, 2010.
The Nasdaq lost 102.5 points, or 3.58%, ending the week at 2756.38. The S&P 500 Index dropped 52.74 points, or 3.92%, to close at 1292.28.
As for gold, which thrives when fear is high, it surged to an all-time high of $1,632.30 a troy ounce before falling back to $1626.40, as investors looked for safe havens.
On the political side of things, Senator Harry Reid is scheduling a vote on his Senate Bill for tonight, after killing the measure offered by House Speaker John Boehner yesterday.
The Speaker has promised to do the same to the Senate Bill in the House later today, even before it passes the Senate. This would entrench the deadlock even further, setting the stage for a “Bloody Monday” on global stock exchanges.
This artificial crisis comes at the most unfortunate time for the U.S. economy, with a weak second quarter GDP growth number of 1.3%, but with S&P 500 companies reporting earnings growth up 18% in the second quarter from the year-earlier period, and on track to deliver a gain of 20% by the end of earning period.
Failure to reach agreement this weekend and a partial shutdown of the government would represent a lost opportunity for the country to dig itself out of the huge financial crater of the Great Recession and the U.S. very likely would enter a depression.