Are Shutdown Concerns Hitting Investors Now?

On Wednesday, investors became less enthusiastic as they began to wonder how long the government shutdown would last.

The government shutdown finally inspired a bit of risk aversion on Wednesday, as investors began to wonder about how long the budget impasse would continue.

After being presented with a number of economists’ opinions that annual GDP would decline by 0.1 percent for each week that the shutdown persists, investors became more cautious. Traders experienced a bit of excitement in the afternoon, when a video of a burning Tesla (NASDAQ:TSLA) on Washington State Route 167, near Seattle, was posted on YouTube. Tesla stock had already fallen from Tuesday’s closing price of $193 to $185 after Ben Kallo of Baird downgraded TSLA from “outperform” to “neutral”, citing concerns about whether the company can meet its milestones – particularly with regard to the introduction of its upcoming Model X.

The comments posted in reaction to the YouTube video included a number of entertaining conspiracy theories. The most important criticism focused on the fact that the fire was in the front of the car, where the trunk is located. The battery and engine are in the rear of the vehicle. After TSLA shares had fallen more than 7 percent, to $175.40, the company released the following statement, which got the price back up to $180.95 by the closing bell:

“Yesterday, a Model S collided with a large metallic object in the middle of the road, causing significant damage to the vehicle. The car’s alert system signaled a problem and instructed the driver to pull over safely, which he did. No one was injured, and the sole occupant had sufficient time to exit the vehicle safely and call the authorities. Subsequently, a fire caused by the substantial damage sustained during the collision was contained to the front of the vehicle thanks to the design and construction of the vehicle and battery pack. All indications are that the fire never entered the interior cabin of the car. It was extinguished on-site by the fire department.”

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 58 points to finish Wednesday’s trading session at 15,133 for a 0.39 percent decline. The S&P 500 (NYSEARCA:SPY) dipped 0.07 percent to close at 1,693. The Nasdaq 100 (NASDAQ:QQQ) squeaked upward by 0.01 percent to finish at 3,253 after rising as high as 3,256.71 – its highest intraday level since November 3, 2000. The Russell 2000 (NYSEARCA:IWM) declined 0.45 percent to close at 1,082, after climbing as high as 1,087.39 – a whisker shy of Tuesday’s all-time record intraday high of 1,087.78.

In other major markets, oil (NYSEARCA:USO) jumped 1.99 percent to close at $37.41. On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced $1.09 (1.02 percent) to $108.20/bbl. (NYSEARCA:BNO). December gold futures advanced $30.60 (2.38 percent) to $1,316.70 per ounce (NYSEARCA:GLD). Transports were forced to take side streets on Wednesday, with the Dow Jones Transportation Average (NYSEARCA:IYT) declining 0.44 percent.

America’s government shutdown crushed Japan’s stock market on Wednesday, as the dollar weakened, bringing unwanted yen strength. The yen strengthened to 97.65 per dollar during the last 30 minutes of Wednesday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). Honda saw its share price fall 1.5 percent. The Nikkei 225 Stock Average sank 2.17 percent to 14,170 (NYSEARCA:EWJ).

In China, the Shanghai Stock Exchange will be closed through the week for National Day (NYSEARCA:FXI). The Hong Kong Stock Exchange reopened after the holiday and casino stocks led the day’s advance. Hong Kong’s Hang Seng Index climbed 0.55 percent to end the session at 22,984 (NYSEARCA:EWH).

In Europe, stocks fell as investors remained risk-averse as a result of the government shutdown in the United States (NYSEARCA:VGK). The fact that Italy’s Prime Minister Enrico Letta survived a confidence vote in the nation’s Parliament, did not restore European investors’ confidence in the sanity of the United States Congress (NYSEARCA:EWI).

The Governing Council of the European Central Bank decided to keep its benchmark interest rate at the record low of 0.5 percent. At his press conference after the Governing Council meeting, ECB President Mario Draghi stuck the new “forward guidance” script he poached from Ben Bernanke, by noting the interest rate would remain at 0.5 percent “for an extended period”.

The Euro STOXX 50 Index finished Wednesday’s session with a 0.50 percent drop to 2,918 – remaining above its 50-day moving average of 2,828. Its Relative Strength Index is 59.96 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,679 after finishing Wednesday’s session with a 0.07 percent dip to 1,693. Its Relative Strength Index ticked downward from 54.22 to 53.66. Although the MACD remains above the zero line, it has crossed below the signal line, suggesting the likelihood of a continued retreat.

For Wednesday, 5 sectors finished in the red and 4 sectors finished in positive territory. The materials sector led the group with a gain of 0.26 percent. The industrial sector took the hardest hit, with a 0.64 percent decline.

Consumer Discretionary (NYSEARCA:XLY): -0.03 percent
Technology: (NYSEARCA:XLK): +0.03 percent
Industrials (NYSEARCA:XLI): -0.64 percent
Materials: (NYSEARCA:XLB): +0.26 percent
Energy (NYSEARCA:XLE): +0.23 percent
Financials: (NYSEARCA:XLF): -0.02 percent
Utilities (NYSEARCA:XLU): +0.11 percent
Health Care: (NYSEARCA:XLV): -0.23 percent
Consumer Staples (NYSEARCA:XLP): -0.21 percent

Bottom line: Stocks made a slight retreat on Wednesday as investors began to worry about the potential duration of the government shutdown and its impact on the economy.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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