Investors Fret as Debt Ceiling Worries Grow

As investors refocused their worries from the budget to the debt ceiling battle, stocks made a more significant decline on Thursday.

Stocks sank further on Thursday, as investors began to worry that the ongoing budget battle was a signal that the debt ceiling negotiations would meet a similar fate. The spirit of bearishness was fed by a disappointing September Non-Manufacturing ISM Report on Business. The ISM’s Non-Manufacturing Index dropped to 54.4 from August’s 58.6. Economists were expecting a less-significant decline to 57.

Tesla Motors (NASDAQ:TSLA) continued to fall another 4 percent on Thursday, as a result of the YouTube video of a burning Tesla Model S, which we discussed on Thursday. The fire started after the car reportedly drove over “a metallic object”. The incident inspired a new expression used in situations wherein high-flying stocks make abrupt declines: The stock drove over a metallic object.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 136 points to finish Thursday’s trading session at 14,996 for a 0.90 percent decline. The S&P 500 (NYSEARCA:SPY) also fell 0.90 percent to close at 1,678. The Nasdaq 100 (NASDAQ:QQQ) sank 1.21 percent to finish at 3,213. The Russell 2000 (NYSEARCA:IWM) dropped 1.08 percent to close at 1,070.

In other major markets, oil (NYSEARCA:USO) sank 0.75 percent to close at $37.14. On London’s ICE Futures Europe Exchange, December futures for Brent crude oil declined 61 cents (0.56 percent) to $107.69/bbl. (NYSEARCA:BNO). December gold futures fell $3.10 (0.23 percent) to $1,317.60 per ounce (NYSEARCA:GLD). Transports drove over a metallic object on Thursday, with the Dow Jones Transportation Average (NYSEARCA:IYT) declining exactly one percent.

America’s government shutdown continued to restrain Japan’s stock market on Thursday, as the weakened dollar has brought unwanted yen strength. Although the yen weakened slightly on Thursday, the move was insignificant. The yen fell from Wednesday’s 97.65 per dollar to 97.77 per dollar during Thursday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY).

Another bit of good news which failed to boost Japanese stocks came from Markit Economics. The Markit Japan Services PMI for September rose for the eleventh consecutive month to 53.0 from August’s 51.2. The Composite PMI jumped to a four-month high of 53.2 from August’s 51.9. Nevertheless, the Nikkei 225 Stock Average dipped 0.09 percent to 14,157 (NYSEARCA:EWJ).

In China, the Shanghai Stock Exchange will be closed through the week for National Day (NYSEARCA:FXI). Stocks surged on the Hong Kong Stock Exchange after the Chinese government’s official non-manufacturing PMI jumped to 55.4 in September from August’s 53.9, for the highest reading in six months. Hong Kong’s Hang Seng Index jumped exactly one percent to end the session at 23,214 (NYSEARCA:EWH).

In Europe, stocks declined despite the fact that both the Markit Eurozone Composite PMI and the Markit Eurozone Services PMI for September advanced to 52.2 from August’s 51.5 and 50.7, respectively. Economists were expecting no change from the flash readings of 52.1 for each (NYSEARCA:VGK). Concerns about the impact of America’s governmental dysfunction on the Eurozone economy kept investors in a risk-averse mood.

In Britain, the Markit/CIPS UK Services PMI for September made a slight dip to 60.3 from August’s nearly seven-year high of 60.5 (NYSEARCA:EWU). The Euro STOXX 50 Index finished Thursday’s session with a 0.55 percent drop to 2,902 – remaining above its 50-day moving average of 2,832. Its Relative Strength Index is 56.09 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 slipped below its 50-day moving average of 1,679 after finishing Thursday’s session with a 0.90 percent drop to 1,678. Its Relative Strength Index sank from 53.66 to 46.74. Although the MACD remains above the zero line, it has crossed below the signal line, suggesting the likelihood of a continued retreat.

For Thursday, all sectors finished solidly in the red. The utilities sector took the hardest hit, with a 1.17 percent decline.

Consumer Discretionary (NYSEARCA:XLY): -1.13 percent
Technology: (NYSEARCA:XLK): -0.87 percent
Industrials (NYSEARCA:XLI): -1.10 percent
Materials: (NYSEARCA:XLB): -0.85 percent
Energy (NYSEARCA:XLE): -0.87 percent
Financials: (NYSEARCA:XLF): -0.75 percent
Utilities (NYSEARCA:XLU): -1.17 percent
Health Care: (NYSEARCA:XLV): -0.89 percent
Consumer Staples (NYSEARCA:XLP): -0.51 percent

Bottom line: Stocks made more significant declines on Thursday as investors became concerned that the budget battle impasse was a signal that the debt ceiling negotiations would meet a similar fate. Expect the drama and volatility to continue until a settlement is reached.

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

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