Fear over debt fight grips investors

NEW YORK (AP) – A fast-approaching deadline is bound to heighten anxiety. That’s what happening on Wall Street as investors grow increasingly uneasy about the political stalemate over raising the nation’s debt ceiling.

The Dow Jones industrial average has closed down for four sessions in a row. And the declines have been steeper each day, reaching almost 200 points Wednesday.

Lawmakers face an Aug. 2 deadline or risk triggering an unprecedented federal default and unpredictable fallout in the economy. As the contentious debate in Washington heated up, initially the stock market didn’t show much reaction. But recent days have reflected signs of greater concern.

While no one was panicking, financial professionals who handle the investment accounts of everyday Americans — college funds, retirement accounts and other nest-eggs — said their customers were growing more worried by the day. One said he had not seen this level of anxiety since the 2008 financial crisis.

“We’re getting a ton of calls,” said Bob Glovsky, president of Mintz Levin Financial Advisors in Boston. “It’s all ‘What happens if the US defaults? What’s going to happen to me?’”

Similarly, Glen Buco, a certified financial planner with West Financial Services in McLean, Va., said he started hearing from worried clients over the weekend, when talks in Washington failed to produce a compromise.

“The expectation was that there would be an agreement by this week. So now people are beginning to worry,” Buco said. The calls are mostly coming from clients who are nearing or already retired and living off their portfolios.

But he said they are expressing more irritation at the political sparring and aren’t yet panicking, but that may end soon.

Although Wednesday’s decline of 198.75 points was not close to the stomach-churning days of the fall of 2008, when the Dow lurched lower and higher by 700 points some days, there were signs that fear on Wall Street was growing.

The concerns have spread overseas. Asian markets tumbled on Thursday, with Japan’s bellwether index down about one percent, as the threat of a debt default by the world’s largest economy rattled investors there.

“Right now the clouds are gathering,” said Chris Long, a financial planner in Chicago.

Without a deal by Tuesday, the Obama administration has said the government will be unable to pay all its bills, and could miss checks to Social Security recipients, veterans and others who depend on public help. In addition, credit rating agencies could downgrade their assessment of the government’s finances, further unnerving financial markets and perhaps causing interest rates to rise for everyone.

Already, some investors are taking precautions. Richard Shortt, 66, of Somerville, Mass., worries that a default, or even just a downgrade of US debt, could cause bond and stock markets to tumble. Last week he sold about 10 percent of his stock holdings and put the proceeds into a money-market mutual fund.

“It might just be a short-term decline in the markets, but it could last a week or two while this gets resolved,” said Shortt, a semi-retired small business consultant. “If we do get any sort of debt downgrade, even if we avoid a default, that will change the game a bit.”