REUTERS: U.S. Stock Market Ends Its Worst Week In A Year

(Caroline Valetkevitch) - Stocks ended the worst week in a year as time runs out on Washington to reach agreement before the government loses its ability to borrow money.

The S&P 500 fell every day this week and was down 3.9 percent for the week as legislators failed to work out an agreement to raise the federal borrowing limit, which expires on Tuesday. Investors also worry about the likelihood of a U.S. credit downgrade.

The CBOE Market Volatility Index .VIX, a gauge of investor fear, jumped as much as 9 percent to its highest level since mid-March before paring its rise.

Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, said investors are taking a more defensive stance, possibly moving more into cash.

"It's frustrating for investors and for U.S. citizens to see this unfold in the way it has been," she said.

"From an overall asset allocation standpoint, in an environment like this, you get bigger moves into cash and safe havens."

The Dow Jones industrial average .DJI was down 96.87 points, or 0.79 percent, at 12,143.24. The Standard & Poor's 500 Index .SPX was down 8.39 points, or 0.65 percent, at 1,292.28. The Nasdaq Composite Index .IXIC was down 9.87 points, or 0.36 percent, at 2,756.38.

President Barack Obama told Republicans and Democrats to find a way "out of this mess." The United States will be unable to borrow money to pay its bills if Congress does not raise the debt limit by August 2.

A second attempt for a vote in the House of Representatives is expected after the close of trading on Friday after a bill was modified to try to win over more conservative lawmakers. The measure has little chance of passing in the Senate, however.

At least one credit rating agency has said it is likely to lower the United States' prized tripe-A rating if the cuts in Washington don't go far enough.

"Will the deal be enough to satisfy the credit rating agencies is really what's at stake here," Trunow said, whose firm manages about $14.8 billion.

The S&P utility index .GSPU is down 2.1 percent for the week, while the Dow is down 4.2 percent and the Nasdaq is down 3.6 percent for the week.

The S&P 500 briefly fell below its 200-day moving average, seen as key support, and bounced back from its worst levels of the day.

Weak economic data also weighed on equities. The U.S. economy stumbled badly in the first half of this year and came dangerously close to contracting in the January-March period.

Among declining stocks, Chevron Corp (CVX.N), the second-largest U.S. oil company, fell 1 percent to $104.02 despite reporting a 43 percent jump in quarterly profit that beat estimates.
(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

The Full Motley: 3Q 2011

Wow, things have been moving along at such a fast pace that I am surprised how soon I am to my rebalancing again.  Sunday will be July 10, 2011, so I can submit my changes today or on Monday.  Based on the amount of homework I have to finish, I opted to distract myself by rebalancing today.

When I logged onto my accounts today, I saw this as my current allocations:

Fund # - Real / Current / Target
Fund 24 - 25% / 0% / 25%
Fund 29 - 5% / 0% / 5%
Fund 59 - 25% / 0% / 25%
Fund 84 - 10% / 0% / 10%
Fund 85 - 25% / 0% / 25%
Fund 113 - 11% / -1% / 10%

Due to rounding, I had 101% of allocations in my 401(k) and I had no discernable means of moving the excess 1% anywhere.  Obviously, this glitch was due to rounding.  When I got into the more specific details of the funds, I ascertained that the following moves were needed:

• Vanguard High-Yield Corporate Fund (add small amount)
• Vanguard PRIMECAP Fund Investor  (add small amount)
• Vanguard Total Int'l Stock Index Fund (remove 1%)
• Vanguard Total Bond Market Index Fund (add <1%)
• Vanguard Total Stock Market Index Fund (remove small amount)

Once again, not much activity, but the gain in the Vanguard Total International Stock Index Fund was removed from the fund and dispersed amongst other funds that have fallen.  The overall expectations of the domestic markets right now is that they will fall through October and then hit a sharp rise, although that has not happened quite to the extreme that I have been anticipating.  The markets have been going up lately and they are still above where they were in January 2011, which is especially surprising to me.  My prediction was that the markets would gain under 10% for the year.  At this point, it looks like they are in position to gain 10-15% for the year.

Therefore, I have a decision to make.  I can either continue contributing to my Roth IRA or I can suspend contributions until later.  After a couple days of consideration, I opted to suspend contributions because (A) I was expecting the market would be well below 12,000 (maybe even below 11,000), and (B) I need liquid assets in case I am unable to get part-time work (or if I decide against pursuing work) before I complete my degree.