There was finally some good economic news as first time unemployment claims came in under 400,000 for the first time in 15 weeks.
Some horrifying predictions on the economy if the debt ceiling doesn't get raised in the article below.
Here are the top financial stories of the day:
1) Stock rally fades ahead of House vote on debt deal-From the AP
A late sell-off wiped out the stock market's gains Thursday as investors worried that a bill headed for a vote in the House of Representatives would fail to break a stalemate over raising the country's debt limit.
The market was up for much of the day but started to sink in the last half-hour of trading. Senate Majority Leader Harry Reid said in the afternoon that the House bill wouldn't get a single Democratic vote in the Senate, meaning it would fail.
"That gave a catalyst for selling," said Quincy Krosby, market strategist at Prudential Financial.
The Dow Jones industrial average fell 62.44 points, or 0.5 percent, to close at 12,240.11. The index had been up as many 82 points earlier in the day following an unexpected decrease in new claims for unemployment benefits.
Just five days remain until the Treasury Department says the government won't have enough money to cover all its bills. The Dow has fallen every day since Friday because of worries that the U.S. might default on its debt if Congress doesn't raise the country's borrowing limit. The Dow is headed for its worst week in just over a year.
The Standard & Poor's 500 fell 4.22, or 0.3 percent, to close at 1,300.67. The S&P 500 has fallen for the past four days. The Nasdaq composite index edged up 1.46, or 0.1 percent, to 2,766.25.
Even if the U.S. doesn't default, investors worry that the country might lose its triple-A credit rating. That could raise interest rates and possibly slow down the U.S. economy, which is still recovering from the worst recession in decades.
"We're running out of time," said Phil Dow, director of equity strategy at RBC Wealth Management in Minneapolis. "It's getting scary."
The Dow is now down 3.5 percent for the week and is headed for its worst week since early July 2010. The S&P 500 is down 3.3 percent for the week, while the Nasdaq is down 3.2 percent.
Markets were still less volatile than Wednesday, when the Dow had its biggest one-day drop since early June. One reason for optimism: The government said first-time applications for unemployment benefits fell to 398,000 last week, the lowest level in four months. That's a sign that employers are laying off fewer workers.
The price of gold, which tends to rise when investors are fearful of economic disruptions, fell $1.70 to $1,613.40 an ounce. It's still up 13.4 percent this year. The dollar rose against other currencies, as did Treasury prices. The dollar and Treasurys would likely fall if investors were worries that a default was imminent.
Technology stocks rose after LSI Corp., which makes storage and networking chips, forecast revenues that were higher than investors were expecting. Its stock gained 14.1 percent, the most in the S&P 500.
Bristol-Myers Squibb Co. rose 1.5 percent after the drugmaker reported earnings that were better than analysts anticipated. The company also raised its earnings forecast for 2011.
Exxon Mobil Corp. fell 2.2 percent after its earnings came in below analysts' estimates.
Akamai Technologies Inc. fell 19.1 percent, the most in the S&P 500 index, after the online streaming company's earnings were lower than analysts had expected. Sprint Nextel Corp. fell 15.9 percent. The nation's No. 3 wireless carrier said its loss widened in the second quarter, partly because of a tax expense and investment losses.
Nearly two stocks fell for every one that rose on the New York Stock Exchange. Volume was relatively heavy at 4.4 billion shares.
2) Jobless claims fall below 400,000-From Reuters
New claims for unemployment benefits fell more than expected last week, dropping below the key 400,000 level for the first time since early April, according to a government report on Thursday that pointed to some labor market improvement.
Initial claims for state unemployment benefits dropped 24,000 to a seasonally adjusted 398,000, the Labor Department said.
Economists polled by Reuters had forecast claims falling to 415,000. The prior week's figure was revised up to 422,000 from the previously reported 418,000.
Employment growth stumbled badly in May and June, with the increase in nonfarm payrolls totaling only 43,000.
The drop in jobless claims last week below the 400,000 mark that is normally associated with stable jobs growth will be welcome news for the economy after a recent string of weak data.
It is also a hopeful sign for the economy which has struggled to regain momentum after growth faltered in the first half of 2011.
The government is expected to report on Friday that the economy grew at a 1.8 percent annual rate, according to a Reuters survey, after a tepid 1.9 percent pace in the first three months of the year.
On Wednesday, the Federal Reserve said growth slowed in much of the country in June and early July.
A Labor Department official said there were no special factors in last week's jobless claims data.
The four-week moving average of claims, considered a better measure of labor market trends, fell 8,500 to 413,750.
The number of people still receiving benefits under regular state programs after an initial week of aid declined 17,000 to 3.70 million in the week ended July 16.
Data for the so-called continuing claims covered the survey week for the household survey from which the unemployment rate is derived. The jobless rate rose to 9.2 percent in June from 9.1 percent in May.
The number of Americans on emergency unemployment benefits rose 18,427 to 3.17 million in the week ended July 9, the latest week for which data is available.
A total of 7.65 million people were claiming unemployment benefits during that period under all programs, up 320,152 from the prior week.
3) If US Defaults, Stocks Fall 30%, GDP 5%: Credit Suisse-From CNBC
In the very unlikely event that the United States defaults on its debt obligations, the country's economy would contract by 5 percent and stocks would fall by nearly a third, according to Credit Suisse.
While Andrew Garthwaite and the global strategy team at the Swiss bank see a 50-50 chance of a ratings downgrade of U.S. debt by the major ratings agencies, they remain confident such an outcome would not lead to disaster.
"We think there is a 50 percent chance of a ratings downgrade on U.S. sovereign debt.
This could happen even if the debt ceiling is raised," Garthwaite, the head of global strategy at Credit Suisse, said in research note.
"We doubt it will have much effect," he continued. "Japan has a 1.1 percent yield and an AA- rating, many U.S. Treasury funds do not have credit-rating limitations and national bank regulators would probably keep risk weightings for U.S. sovereign debt at zero."
If no budget deal is struck, but the U.S. does not default, Garthwaite predicts a bad time for stocks and the economy.
"As our economists point out, each month of no rise in the ceiling could easily take 0.5-1 percent off GDP.
In this case, equity markets would drop by 10-15 percent, prompting Congress to find a solution, and bond yields would fall to 2.75 percent." If that proved to be the case, investors would in Garthwaite's opinion need to get into defensive stocks and out of the dollar.
However, the worst case scenario is clearly an outright U.S. default. That is where things could get nasty, according to the Credit Suisse team.
"This is very unlikely, but if it occurs, GDP could fall 5 percent plus, and equities by 30 percent," Garthwaite said.
In the event of such a disastrous outcome, Garthwaite predicts the only place to hide would be in cash-rich stocks.
Quote of the Day from Dave Ramsey.com:
Leaders get out in front and stay there by raising the standards by which they judge themselves—and by which they are willing to be judged.-Unknown
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