As the partial government shutdown enters Day Seven, the anxiety level on Wall Street is on the upswing and stock prices are heading lower Monday as hardening stances on both sides of the political aisle over the weekend inches the world's largest economy closer to its first-ever debt default.
In early trading on Wall Street, all major U.S. stock indexes were in the red. The Dow Jones industrial average was down more than 120 points, or 0.8%. Similarly, the Standard & Poor's 500 slumped 0.7% and Nasdaq composite was down 0.5%.
World markets kicked off the week nervously due to the U.S. debt impasse, with stocks falling in Tokyo and Hong Kong and major European capitals by about 1%, on average.
Most on Wall Street figure Washington lawmakers won't let the U.S. default. They argue that politicians aren't "MAD," or on the path of "mutually assured destruction," says Joseph Quinlan, an investment strategist at U.S. Trust.
Still, the nervousness over how the budget impasse will end is likely to make investors cautious for the time being, he says.
"Expect more market volatility and downside pressure if a deal is not reached this week and as we move closer to the mid-October deadline," says Quinlan.
U.S. stocks posted modest gains Friday, driven by optimism at the time that Washington's bickering politicians would resolve their budget fight. The Dow rose 0.5%, to close at 15,072.58. The S&P 500 index added 0.7%, to 1,690.50. The Nasdaq rose 0.9%, to 3,807.75.
During the shutdown, the broad market, as measured by the S&P 500, is actually up 0.5%.
But investor anxiety has risen as the U.S. budget impasse between Republicans and the White House drags on.
On Sunday, Republican House of Representatives Speaker John Boehner ruled out a vote on a straightforward bill to raise the government's borrowing authority without concessions from President Obama before an Oct. 17 deadline, moving closer to the possibility of default.
"This has really rattled markets and is likely to result in further near-term weakness for global equities," Stan Shamu, a market strategist for IG investors, said in a note to clients.
In Asia, Japan's Nikkei index, the regional heavyweight, slumped 1.2% to 13,853.32. Hong Kong's Hang Seng index fell 0.7% to 22, 973.95 and India's BSE 30 index lost 0.5% to 19, 808.71. Mainland China markets were closed for a public holiday. Benchmarks across Europe were moving lower.
SMG investment group also cited the U.S. political showdown as the reason for Monday's market declines, saying in an advisory that "the latest comments from politicians showed no signs of progress to resolve the budget standoff."
Benchmark oil for November delivery fell 61 cents to $103.23 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 53 cents to close at $103.84 on the Nymex on Friday.
Corporate earnings season will get underway this week.