All is Not Well as Futures Sink on Syria, U.S. Debt Debate

NEW YORK ( TheStreet) -- Stock futures were slumping Tuesday on concern the U.S. may strike Syria and amid worries that Congress will once again force a stalemate over the debt ceiling and a protracted debate over spending cuts.

Futures for the S&P 500 were falling 11.75 points, or 11.98 points below fair value, to 1,642.5. Futures for the Dow Jones Industrial Average were declining 90 points, or 85.46 points below fair value, to 14,841. Futures for the Nasdaq were shedding 24.75 points, or 25.52 points below fair value, to 3,096.25.

December gold futures were surging $25.10 to $1,418.20 an ounce as investors fled to safety assets. October crude oil futures were spiking by $2.51 to $108.43 a barrel on concerns that the conflict with Syria would result in the disruption of supplies.

J.C. Penney ( JCP) shares were off by 1.35% to $13.17. Pershing Square Capital Management's Bill Ackman is selling his entire stake in J.C. Penney. The stake, about 18% of the struggling retailer's common stock, is worth about $526 million, based on J.C. Penney's closing stock price on Friday.

J.C. Penney will not receive any proceeds from the sale of the shares.

Major U.S. stock markets sharply dropped Monday after Secretary of State John Kerry said there was "undeniable" evidence that Syria had used chemical weapons, leaving investors to wonder whether the U.S. will take overt military action to unseat the Assad regime.

U.S. Defense Secretary Chuck Hagel told BBC that the U.S.-led forces would be "ready" to strike if President Barack Obama ordered an attack. Meanwhile allies of Syria including Russia and China have been warning against military intervention in the country warning of the devastating results for the region.

Treasury Secretary Jack Lew's warning that the U.S. government could reach its debt limit by mid-October and that Congress should take some action about that soon also sent jitters through the markets.

"Geopolitical risk is back to worry financial investors," while "the U.S. Treasury has started the roughly semi-annual debt ceiling dance with Congress," Paul Donovan, a London-based global economist at UBS, commented in a note.

"This is no longer simply about Syria," George Friedman, chairman of the Austin, Texas-based global security intelligence firm Stratfor said in a report. "The United States has stated a condition that commits it to an intervention. If it does not act when there is a clear violation of the condition, Obama increases the chance of war with other countries like North Korea and Iran."

"It is hard to imagine how an attack on chemical weapons can avoid an attack on the regime -- and regimes are not destroyed from the air," he continued. "Doing so requires troops. Moreover, regimes that are destroyed must be replaced."

Bricklin Dwyer, an economist at BNP Paribas in New York, wrote that October has typically run deficits in the neighborhood of $120 billion over the past few years, which implies the government would be at risk of default by the end of October or early November, unless the debt ceiling is increased or suspended.

"While the timing is in line with our previous estimates, the formal announcement by Secretary Lew is a necessary step to ignite the likely contentious debt ceiling negotiations in Congress," said Dwyer.

At 10 a.m., the Conference Board's August consumer confidence numbers will be out. A decline to 79 from 80.3 is expected.

The June S&P/Case-Shiller 20-city home price index showed an as-expected increase of 12.1% before the open, down from 12.2% in May.

In other corporate news, Tiffany ( TIF)was rising 1.38% to $82.80 after the luxury retailer exceeded Wall Street expectations by nine cents with second-quarter earnings of 83 cents a share and hiked its full-year outlook amid impressive sales results in China.

Specialty pharmaceutical company Hi-Tech Pharmacal ( HITK) is being acquired by competitor Akorn ( AKRX) for $640 million in cash, or $43.50 a share, which is a 23.5% premium over the prior session's settlement price.

The benchmark 10-year Treasury was gaining 11/32, diluting the yield to 2.75%. The dollar was up 0.1% to $81.49 according to the U.S. dollar index.

International stock markets sank. The DAX in Germany was slumping 1.59% and the FTSE 100 in London was off 0.61%. The Hong Kong Hang Seng closed down by 0.59% and the Nikkei 225 in Japan finished off 0.69%.

-- Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.>

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