After the Close - The bears were out in increasing force today, with the contentious fiscal talks on Capitol Hill once again unnerving the investment community. Specifically, investors were disappointed to hear that talks between President Obama and Speaker of the House John Boehner did nothing to thaw the icy relationship between the bickering political parties and, more importantly, restart serious negotiations aimed at coming to a budget agreement and raising the U.S. debt-ceiling limit. A failure to resolve the latter issue could have far more dire financial and economic consequences both here and abroad, a sentiment echoed by President Obama this afternoon. Our sense is that the debt-ceiling fear is the biggest reason for the burgeoning bearish sentiment on Wall Street.

Thus, at the final bell, the Dow Jones Industrial Average, the NASDAQ, the S&P 500 Index were down 160, 76, and 21 points, respectively. Of note was the outsized loss recorded by the NASDAQ, which fell sharply on a bad day for the technology stocks. Several of the industry heavyweights, including Apple (AAPL) and Google (GOOG), along with the prominent social-media names Facebook (FB) and LinkedIn (LNKD), finished the session lower. The technology sector had some companionship in negative territory, with the other notable laggards being the basic materials, industrial, energy, financial, and consumer discretionary groups—all of which are closely tied to performance of the economy. Conversely, there was some buying interest in the consumer staples and utilities sectors, areas that are considered to be more defensive.

As noted, the lack of any major breakthroughs on Capitol Hill and the continued government shutdown has unnerved investors. Traders are showing less of a desire to add risk to their portfolios, which can explain why the defensive-oriented stocks and fixed-income securities have been in higher demand over the last fortnight. The “flight to safety” strategy has picked up momentum, as concerns about the fiscal uncertainty on Capitol Hill and the impact that it will have on the domestic economy continue to mount. In the same vein, the riskier small- and mid-cap issues have fallen out of favor in recent weeks. Both the S&P Mid-Cap 400 Index and the small-cap Russell 2000 were considerably lower today, continuing a trend that gained some steam after the government shutdown became a reality a week ago.

The government shutdown is looking like a double edged sword for the investment community. Selling has intensified as the duration of the government shutdown has lengthened, with investors fearing that the fiscal inactivity will hurt near-term GDP. Too, the stoppage has delayed the release of a few notable economic reports that may have diverted investors’ attention away from the soap opera on Capitol Hill. The lack of any new market-moving news—particularly on the economy—in recent days may have created a vacuum of bearish sentiment, which is never a good thing for investors that are long equities. Save for last Friday’s muted response from the bulls, trading has been dominated by the bears over the last two weeks.

Looking ahead, investors are desperately longing for some positive news to run with. However, the tidings from Washington have provided none such the last two weeks and even more disparaging is the continued fighting between the political parties and the lack of any progress toward budget and debt-ceiling deals. A welcomed breath of fresh air for investors would be a productive third-quarter earnings season, which commences shortly with the release of the latest quarterly results from aluminum producer Alcoa (AA). Unfortunately, all signs currently point to a less-than-compelling performance on that front. -  William G. Ferguson

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


3:00 PM EST - The steady, albeit contained, stock market decline that we have seen for the past fortnight, is starting to heat up. Of note, yesterday, the Dow Jones Industrial Average shed 136 points, while the NASDAQ lost 37 points. The standoff in Washington would seem to get the lion's share of the credit for the reversal. Now, today, that same dysfunction in the Capitol is taking an even larger measure of the bulls, as the market's underpinnings appear to be even weaker, and the first signs of a more serious setback are now evident.

To wit, as we head into the final hour of trading, we see that the Dow is off by 130 points, or a similar drop to yesterday. However, it is on the tech-heavy NASADAQ where the real excitement is, as that index is now off by 74 points, or a full two percent.

Also, the decline is now hitting some of the recently better-performing groups, such as the social networking companies, which have led the bull market in recent months. Also, the small- and mid-cap indexes, notably the Standard and Poor's Mid-Cap 400, which is off 15 points, and the small-cap Russell 2000, which is lower by some 17 points, or 1.7%, are taking disproportionate punishment relative to the larger-cap indexes.   - Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.


12:30 PM EST - The U.S. stock market opened modestly lower today, and the selling has picked up steadily. In all, as we pass the noon hour in New York, the Dow Jones Industrial Average is off 88 points; the broader S&P 500 Index is lower by 13 points; and the technology-heavy NASDAQ, which is displaying considerable weakness, is tumbling 61 points, or more than a percentage point and a half. Market breadth is weakening as well, as declining stocks are ahead of advancers by a two-to-one ratio on the NYSE.  Further, there are now more stocks making new lows than new highs on the NYSE, which suggests that the market lacks any bullish tone, at least for now.

Almost all of the major sectors are in negative territory today, with considerable weakness in the technology group. Specifically, the software and computer services stocks are quite weak. The basic materials issues also are falling sharply, with losses notable in some chemical names. Further, the healthcare stocks are not having a particularly good session, as the volatile biotechnology stocks are down considerably. However, the utilities, often viewed as defensive holdings, are bucking the downtrend. Investors also are showing some interest in the food and drug retailers, another defensive area.

Technically, today’s move lower puts the S&P 500 Index below its 50-day moving average, located at 1,679. Clearly, a sustained break through this area could signal that some further weakness might be forthcoming. Meanwhile, the VIX, which jumped sharply yesterday, is a bit higher, rising well past 20 today.

Importantly, investors did not receive the regularly scheduled government-issued economic reports this morning. Of note, we were supposed to get a look at the trade balance figures for August. The lack of reports, due to the government shutdown, may well be adding to the market's frustration. A news vacuum certainly does not help the financial markets, and often traders, looking to preserve capital, will turn defensive in the face of the unknown. Consequently, the market may have a difficult time advancing, until there are indications that some progress is being made on the nation’s budget and debt-ceiling issues.

Meantime, third-quarter earnings season is now arriving. After the close today, we will hear from Alcoa (AA) and YUM! Brands (YUM). Banking giants, JP Morgan Chase (JPM - Free JP Morgan Chase Report) and Wells Fargo (WFC), are also due to put out their third-quarter metrics in the next several days. - Adam Rosner

At the time of this article’s writing, the author had positions in Alcoa (AA).


Stocks to Watch from The SurveyThird-quarter earnings season gets under way after the market closes today, when aluminum maker Alcoa (AA) is scheduled to release September-period results. Until then, however, there are a few other stocks that investors should keep an eye on. To wit, shares of Talisman Energy (TLM) are up nicely ahead of the bell, after activist investor Carl Icahn announced that he has amassed a roughly 6% stake in the Canada-based oil and gas company. The stock of J.C. Penney (JCP) is also moving notably higher in pre-market trading, after the struggling department store operator said that same-store sales fell 4% in August, which was better than expected. – Matthew E. Spencer 

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


Before The Bell - The stock market, under pressure from the partial government shutdown, which now has been in place for more than a week, and from concerns about a possible failure to reach an accord on raising the debt ceiling and the possible default by our nation that could follow, again succumbed to a fit of selling in the latest session.  

All told, the Dow Jones Industrial Average, off by some 150 points at the start of the trading session yesterday, wound up 136 points into the minus column, after a series of half-hearted rally attempts failed over the course of the day. The NASDAQ and the Standard and Poor's 500 Index also closed notably lower on a percentage basis, following declines across the sea earlier in the day. In fact, with no end in sight to the mess in Washington, investors are fleeing stocks and rushing into such perceived save havens as gold and some government bonds.

However, the equity market declines have been orderly as the consensus continues to be that the debt ceiling will be raised by the October 17th deadline notwithstanding the harsh rhetoric on both sides of the political isle on Capitol Hill. As to the shutdown, there seems to be a modicum of concern on that front as well. So, there is no panic. We note, however, that the shutdown will take a toll on the nation's economy if it lasts much longer, putting our estimate of the nation's fourth-quarter gross domestic product growth of 2.0%-2.5% in some jeopardy.

In all, yesterday, the U.S. stock market fell for the 10th time in the past 13 sessions. The Dow is, in fact, now below 15,000, having fallen to its lowest level in a month. The blue-chip index is off almost 5% from the record high reached on September 18th, when we were almost two weeks from the deadline for the aforementioned government shutdown. More important, we were still a month shy of the deadline for raising the debt ceiling.

The thing to watch on Wall Street now is for any change in overall sentiment on whether or not a debt-ceiling deal will be reached in time to sidestep a likely default. As noted, the view is now overwhelming that such an accord will be struck. Should the mood of complacency shift even a modest amount, the level of bearishness, now rather muted, would increase dramatically, in our view.

Meanwhile, the economic news is one casualty of the standoff in Washington. Already, we have not had the monthly employment report, which was due out last Friday, and this morning's scheduled data on the nation's trade imbalance was not forthcoming. Also, reports on retail sales and producer prices, both due out later in the week, now seem unlikely to be issued--even if the shutdown should end very soon, as it will likely take some time to collect the data. Thus, we are limited to such private-sector releases as manufacturing and non-manufacturing activity (already issued earlier this month), consumer sentiment data, and the monthly survey on existing home sales, which is calculated by the National Association of Realtors.

All of this is likely to increase the importance of the pending data on third-quarter earnings. Reporting season is about ready to get under way, and for now, we sense that the reports will not make for especially compelling reading.

Finally, the day ahead on Wall Street seems likely to get started on a mildly bullish note, as the Dow Jones Industrial Average, the S&P 500 Index, and NASDAQ futures are all pointing somewhat higher, with about a half hour to go before the start of the new trading day. With all eyes on Washington, though, it is likely to be news out of the Capitol, if there is any, that will dictate how trading goes in the days ahead, with an accompanying assist from earnings.   - Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.