Stocks continue their slide today as the government shutdown continues and politicians appear set to drag the debt ceiling into the debate.Associated Press
The S&P 500 has dropped 0.7% to 1,682.30, while the Dow Jones Industrials have fallen 100 points, to 0.7% to 15,033.21.
Nomura’s Alastair Newton explains the risks:
Following the impasse over the continuing resolution, we now see a non-negligible possibility that Congress and the Administration will fail to reach agreement on the debt ceiling without there being a technical default first.
The main risk, as we see it, is that moderate Republicans will hold out beyond 17 October to try to head off possible de-selection by the Tea Party in upcoming primaries, even though related attempts to roll back "Obamacare" are doomed.
Nevertheless, even if the deadline (which may now be later than 17 October) for a deal passes, we see only a very low probability of a default on Treasuries.
However, coupled with the impact of the second round of the sequester, pending a resolution we do expect to see:
–A continuing negative impact on business and consumer sentiment in the US;
–Increased market nervousness as the deadline approaches
Even decent jobless claims data wasn’t enough to lift stocks this morning. Miller Tabak’s Andrew Wilkinson sums up the data and its implications:
The Labor Department issued another healthy and clean claimant count delivering the lowest four-week moving average reading since May 2007. The headline reading of 308,000 claims once again came in below a survey average of 315,000 while prior weekly data was revised up by only 2,000. We continue to wonder quite when the momentum will show up in stronger payrolls – something denied by ADP in its September report and something we are likely to be deprived of on Friday by the government shutdown…
The claims level implies that in a period of rising political uncertainty firms are holding onto workers at a time when the economy outside of Washington appears to be moving ahead with reasonable momentum. In the face of such uncertainty and with lack of clarity on the outlook for the economy such momentum is insufficient to prompt the Fed to commence the tapering process.
Will claims stay that way? Already, manufacturers have started to furlough workers–even if they didn’t show up in today’s numbers. The Wall Street Journal reports:
The partial shutdown of the federal government is leading to layoffs and production disruptions at defense contractors and some manufacturing companies.
United Technologies Corp. (UTX) said on Wednesday that it is preparing to furlough nearly 2,000 workers at its Sikorsky unit, which makes Black Hawk helicopters for the Defense Department, and may have to idle several thousand more workers at its Pratt & Whitney and UTC Aerospace units if the shutdown drags on for weeks.
United Tech has dropped 0.5% to 104.51, while Boeing (BA) has fallen 0.7% to $116.97, both helping to weight down the Dow.
Over at the S&P 500, HCP (HCP) has dropped 2.8% $40.62, making it the biggest loser in the benchmark, after the healthcare REIT fired its CEO. PVH (PVH), meanwhile, has gained 5.7% to $124.06, making it the S&P 500′s biggest winner at 9:48 a.m., after the company said it would sell its GH Bass division.
Texas Industries (TXI) has plunged 7.5% to $61.99 after the construction company said it earned 1 cent a share, below forecasts for 2 cents.