U.S. stocks dropped on February 4, as equity markets were pressured by investors concerned about the federal budget cuts in America and slowing economic activity in China.
The benchmark S&P 500 was having a bad day, down 0.3 percent at 1:08 p.m. in New York, according to Bloomberg. The Dow Jones Industrial Average had fallen 0.3 percent to trade at 14,048.38.
These dips came after the S&P 500 has spiked 6.2 percent so far in 2013, and 124 percent since the recent low it hit in March 2009. This group of blue-chip stocks is now less than 4 percent from its all-time high. The Dow is even closer to breaking through to a new record, being within 1 percent of its peak value.
"We're due for a pause," Ralph Shive, who contributes to the management of around $1.2 billion as a fund manager at South Bend, Indiana-based Wasatch Advisors Inc., told the news source by telephone. "I got more defensive in my fund last week, feeling like prices had got ahead of this one one-and-a-half percent" rate of gross domestic growth (GDP).
MarketWatch reports that recent announcements related to economic policy in China have had a significant impact on equity markets. New rules for real estate transactions were recently announced by the government agencies of the nation.
These regulators made an effort to cool down the already-simmering market by hiking the capital gains tax on sales of existing homes to 20 percent and also making buyers purchasing a second home in certain regions front larger down payments and pay higher interest rates on their mortgages, according to the news source.
"The major source of weakness is China tightening," Doug Sandler, chief equity officer at Riverfront Investment Group, told the news source. He emphasized that the sectors that are feeling the most pain as a result of these policy announcements are the ones most dependent on construction - energy, industrials and manufacturers of equipment.
Markets also turned to Chinese government data indicating lackluster growth in the nation's services sector, according to Bloomberg. Data provided by the National Bureau of Statistics and the China Federation of Logistics and Purchasing revealed that the nation's Purchasing Managers' Index for services dropped to 54.5 in February from 56.2 in January.
A wide range of budget cuts were automatically enacted on March 1, as a result of the inability of federal lawmakers to come to a new fiscal agreement that would sharply reduce deficits. Republican members of Congress have stated they are determined to generate these cuts in the deficit through tax increases, MarketWatch reports.
Democratic lawmakers have asked for Congress to make progress toward bringing the federal deficit under control by hiking taxes and also cutting spending.
"I can't get away from the sense that U.S. political protagonists quite like the idea of some fiscal tightening that they can blame on 'the other guys,'" Kit Juckes, head of foreign exchange at French financial institution Société Générale, told the news source. "But the sequester cuts 2013 GDP forecasts by between 0.2% and 0.5% and fuels the risk-averse mood as we await payrolls on Friday."
Sustained budget constraints
Many lawmakers involved have indicated their expectation that this matter will not be resolved quickly, according to Bloomberg. The high chances that this dispute could be dragged on for weeks or even months was articulated by key members of Congress and also the aides of President Barack Obama.
Several market experts have predicted that the cuts will adversely impact economic growth, and the the Congressional Budget Office predicted they will cut U.S. GDP by 0.6 percent in 2013.
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