Today: Facebook, Tesla and other high-profile Silicon Valley companies plunge on Wall Street as investors show fear about impending U.S. debt default.

The Lead: As shutdown creates uncertainty, investors begin selling tech stocks

As the federal government shutdown closed out its first full week, Wall Street showed its displeasure with the political stalemate in Washington D.C., executing a sell-off that sent indexes plunging and had an especially deleterious effect on Silicon Valley's technology companies.

All three major U.S. stock indexes declined more than 1 percent Tuesday, led by the tech-heavy Nasdaq with a 2 percent dip, as stocks that have enjoyed huge gains so far this year -- such as Facebook, Yelp, Pandora and Netflix (NFLX) -- took sharp steps backward.

"With the uncertainty surrounding Washington dominating trading, today was the day the momentum names finally were hit hard," Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, told Reuters.


Advertisement

Fear on Wall Street stems from yet another political standoff on Capitol Hill, similar to the debt ceiling debate of 2011, the "fiscal cliff" fight at the end of 2012, and the sequestration battle earlier this year. In the latest squabbling, the Republican-controlled House has refused to pass bills needed to keep the federal government running and paying its debts in an attempt to stave off health care legislation that was approved in 2010 and went into effect last week.

President Barack Obama, who championed the health care reform that is sometimes referred to as Obamacare, said Tuesday that he will not negotiate with Republicans until they pass the bills needed to get the government up and running and ensure that the economy does not suffer.

Negotiations "shouldn't require hanging the threat of a government shutdown or economic chaos over the heads of the American people," Obama said in a news conference Tuesday.

Wall Street has grown inured to such fights, but still suffered weakness Tuesday as concerns spread, with experts saying that the weakness could set up shop for awhile as politicians bicker.

"The market is going to start to push the government," Rick Fier, director of equity trading at Conifer Securities, predicted to Bloomberg News. "The longer it drags on, the more uncomfortable everyone gets because we will not rally until something gets done. Get out now and wait for the storm to pass to get back in."

High-flying Internet stocks were hit the hardest: The Nasdaq Internet Index had its largest percentage decline in nearly two years, Bloomberg reported, and all 81 stocks included in the index -- many of them based in Silicon Valley -- declined. Investors seemed ready to avoid the indecision and take the profits from stocks that had zoomed higher in the first three quarters of the year.

"Guys are looking at their portfolios and saying, 'These are up huge, maybe I sell some to lock in some gains and revisit post debt-ceiling resolution,'" Ian Winer, director of equity trading at Wedbush Securities, told Bloomberg.

SV150 market report: Social stocks feel harsh pain as Facebook, Yelp, LinkedIn fall

Silicon Valley stocks showed the pain of Tuesday's sell-off, with the SV150 declining 2.2 percent, more than any of the three major national indexes, as social-networking stocks were hit particularly hard.

Facebook and Yelp experienced the strongest gains in Silicon Valley in the third quarter, when Facebook's stock price actually doubled, but both took big hits Tuesday. Facebook declined 6.7 percent to $47.14, its lowest closing price since Sept. 19, as the Menlo Park company announced a redesign of its advertising offering; Yelp feel even harder, declining 7.6 percent to $64.60. LinkedIn and Zynga joined the social sell-off, with the Mountain View professional-networking company declining 6.1 percent to $222.73 and the San Francisco social-gaming pioneer descending 4.3 percent to $3.54.

Tesla, which had the fourth-largest jump among Silicon Valley stocks in the third quarter, declined 1.6 percent to $174.73 as its chief technology officer continued the Palo Alto company's efforts to fight negative perceptions sparked by a recent car fire that was caught on video. Apple (AAPL) fell 1.4 percent to $480.94 despite the White House's refusal to veto a Samsung product ban and Wells Fargo's positive note on the Cupertino company. Google (GOOG) fell 1.4 percent to $20.75 on the day it announced a new Chromebook built by Hewlett-Packard (HPQ); HP, which will discuss its future with analysts on Wednesday, declined 0.9 percent to $20.75. Yahoo (YHOO) descended 3.5 percent to $32.93 while showing off a new design for its webmail service, and Intel (INTC) declined 1.5 percent to $22.48 while introducing a platform for the so-called Internet of Things. eBay (EBAY) gained a tough competitor for PayPal, as Amazon began seeding a payments service to other websites, while eBay launched a new way for consumers to use PayPal in the brick-and-mortar world; San Jose-based eBay fell 2.9 percent to $52.97. One of the few bright spots on the day was Sunnyvale networking company Finisar, which received an upgrade from Jefferies and gained 1 percent to $23.77.

Up: Audience, SolarCity, Finisar

Down: Pandora, Yelp, Facebook, LinkedIn, Netflix, Electronic Arts (ERTS), Tesla, SunPower (SPWRA), Zynga, Salesforce, Gilead, Yahoo, Workday, VMware, eBay, Adobe

The SV150 index of Silicon Valley's largest tech companies: Down 28.76, or 2.16 percent, to 1,302.97

The tech-heavy Nasdaq composite index: Down 75.55, or 2 percent, to 3,694.83

The blue chip Dow Jones industrial average: Down 159.71, or 1.07 percent, to 14,776.53

And the widely watched Standard & Poor's 500 index: Down 20.67, or 1.23 percent, to 1,655.45

Check in weekday afternoons for the 60-Second Business Break, a summary of news from Mercury News staff writers, The Associated Press, Bloomberg News and other wire services. Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.