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Tuesday June 2nd, 2015 11:38AM

Stocks drop as investors fret over budget fight; Dow down 185

By The Associated Press
Washington's budget fight jolted investors on Friday, reminding them that the next few weeks could bring a lot of uncertainty. Wall Street hates uncertainty.

Stocks fell in an afternoon sell-off that wiped out most of the gains from a rally earlier this week, when the Federal Reserve decided to keep its huge economic stimulus program intact.

Major indexes were mixed in morning trading, but turned lower around midday after the U.S. House of Representatives voted to defund President Barack Obama's health care law.

The vote itself wasn't a surprise, but it reminded investors that the Republican-led House and the Democratic-controlled Senate are poised for a showdown over federal spending.

The debt ceiling must be raised by Oct. 1 to avoid a government shutdown, and a potential default on payments, including debt, later in the month.

The threat of a default in August 2011 helped send global stock markets into a tailspin.

"What we've done is basically committed ourselves to two weeks of worry," said Sam Stovall, chief equity strategist at S&P Capital IQ.

Until now, September defied the worriers. The stock market has bounced backed from an August swoon, despite a calendar loaded with potential rally killers.

Fears of a conflict with Syria have faded, and Wall Street cheered when Larry Summers withdrew his name as a candidate to replace Federal Reserve chairman Ben Bernanke.

Summers, a former Treasury secretary, was viewed as more likely to rein in the Fed's stimulus program, which has kept interest rates low and boosted corporate profits.

As Middle East strife recedes from investors' minds, though, fears of budget gridlock grow.

"Geopolitics ... is much lower on the list. It's not off the list" of investor worries, said David Darst, chief investment strategist for Morgan Stanley Wealth Management. "No. 1 becomes the debt ceiling and the federal spending debate."

The Dow Jones industrial average dropped 185.46 points, or 1.2 percent, to close at 15,451.09. That was 225 points below its all-time closing high reached Sept. 18 after the Fed's announcement.

The Standard & Poor's 500 index fell 12.43 points, or 0.7 percent, to 1,709.91. All 10 industry groups in the S&P 500 fell, led lower by telecom companies and utilities.

Even with the decline, the S&P 500 index is up 4.8 percent for the month, and 20 percent this year.

In corporate news, BlackBerry plunged $1.79, or 17 percent, to $8.72 on the Nasdaq after announcing a loss of nearly $1 billion and layoffs of 4,500 workers. The company's phones have been eclipsed by phones from Apple and Samsung.

Apple fell $4.89, or 1 percent, to close at $467.40 as its newest iPhone debuted at stores.

Darden, the struggling parent of Olive Garden and Red Lobster, fell $3.52, or 7 percent, to $45.78 after posting a much lower quarterly profit and saying its president and chief operating officer will retire. Sales fell at its two flagship restaurant chains despite efforts to renew menus and advertising.

Two new stocks had strong debuts. Tech security company FireEye surged $16, or 80 percent, to end at $36, and artificial intelligence company Rocket Fuel rose $27, or 93 percent, to $56.10.

The yield on the 10-year Treasury note fell to 2.74 percent, from 2.76 percent on Thursday.
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