U.S. stocks fell, with the Standard & Poor's 500 Index dropping the most in a month, as data showed weaker-than-forecast growth in service industries and concern grew that the political impasse could lead to a recession.

The S&P 500 lost 0.9 percent to 1,678.57 at 4 p.m. in New York, its steepest slide since Aug. 27.

"I think people are starting to raise an eyebrow finally," Joseph Saluzzi, partner and co-head of equity trading at Themis Trading LLC in Chatham, New Jersey, said in a phone interview. "The longer this goes on, people get a little more nervous. And when people get nervous they sell first and ask questions later."

Talks last night between congressional leaders and President Obama failed to break the fiscal stalemate that has caused the first government shutdown in 17 years, with both sides repeating the positions they've held for weeks.

Obama said today there is only "one way out" -- for House Speaker John Boehner to allow a vote on a stopgap spending bill without conditions. The speaker urged Democrats to negotiate a settlement, blaming them for causing the stoppage.

The S&P 500 fell as much as 1.4 percent before trimming its decline. The paring accelerated after Boehner's spokesman said the speaker would not let the government default on its debt.

David Fuller's view The US political impasse has the capacity to fray investor nerves while it persists. Most pundits said it would be over in 3 to 4 days, so if it carries into next week that would remain a headwind for stock markets.

Nevertheless, as Winston Churchill said in a considerably more dramatic context:

"You can always count on Americans to do the right thing - after they've tried everything else."

Most stock markets are holding up quite well, as you can see from the DJ World Stock Index (weekly & daily), quoted in USD. However, they are not cheap, the resources sectors being a main exception, and this Index is currently somewhat overextended relative to its 200-day MA.

The DJ World Stock Index might just accelerate higher in November and December, although I regard this as an outside chance. However, if it did occur, a significant surge above recent highs would look climactic and I would most likely commence lightening in my personal long-term investment portfolio. Alternatively and perhaps more likely, the Index can range sideways to lower, creating another buying opportunity.

The bigger medium-term risk to watch out for would be a clear break in the higher reaction lows shown on the 10-year weekly chart above. That would be the end-August low just beneath 280, as you can see from the daily chart above. It would suggest another medium-term correction such as we last saw in 2011.

Meanwhile, the most important fundamental indicator remains the extremely low interest rates in the USA and most other countries. It has served investors well, despite the near inevitability of QE tapering by the US Federal Reserve in 2014. My guess is that this is unlikely to commence before December of this year, and that would require a mostly healthy Q4 in terms of economic data and stock market performance.

I do not expect a robust economic performance in the US or anywhere else at this stage of the cycle. Modest, sporadic recovery would be consistent with a background of deleveraging which continues approximately four years following the trough of the credit crisis recession for most countries in 2009. This process is not only necessary but also ultimately healthy for the longer-term economic outlook.

On another topic, I would be surprised to see a strong improvement in employment conditions over the lengthy medium term and perhaps considerably longer. If so, this would reflect far more than the deleveraging and gradual recovery process that we have been living through since 2008.

Put yourself in the position of any employer who is trying to improve the productivity and profitability of a manufacturing business. Even if the outlook is improving, would you rather hire more personnel, who might have to be trained, and might need to have time off, and might not be uniformly reliable? Or would you rather buy some of the increasingly smart machines which could work 24 hours a day and 7 days a week, if required, and needed only the assistance of a few reliable human managers? If that opportunity is not already present, it soon will be.