Tuesday, October 01, 2013

Stocks Shrug Off Govt. Shutdown

So our dysfunctional congress couldn't avert the govt shutdown in the end.  Not a big surprise given how things have gone in recent years.  Hopefully they won't act in the same manner when the debt ceiling deadline arrives in October.

Of course, the big worry for investors was how the markets would react.  If today's open is an indication, the market isn't too worried about this event.  Stocks are nicely higher in early trading and have been adding to their gains so far. 

Stocks also got a boost from some solid economic data.  The September ISM Index rose to 56.2 from 55.7.  This marks the highest level from this manuf. index since April 2011.  We aren't likely to get more economic data for the rest of the week as the govt shutdown will effect the releases.  If the shutdown goes all week, Friday's monthly jobs report will be delayed.

Asian markets were mostly higher, while China and Hong Kong were closed for holiday.  China's manuf. PMI ticked higher to 51.1 from 51.0.  Japan's unemployment rate increased to 4.1% from 3.8%.  And the Reserve Bank of Australia held its key interest rate steady at 2.50%. 

Europe's markets are mixed today.  Eurozone manuf. PMI slipped to 56.7 from 57.1.  Germany's unemployment rate rose to 6.9% from 6.8%.  Also, in Italy reports indicate up to 20 PDL Senators have looked into forming their own party to avert a collapse of the govt.

The dollar is flat today, but most commodities are lower.  Gold prices are getting hit hard and falling all the way down to $1288.  Oil prices are also weak again near $101.33.

The 10-year yield is higher to 2.63%, but still a ways off from the 3.0% level that just a few weeks ago folks thought was a done deal.  We recently added to our short Treasury positions to hedge against the prospect of rising rates.

As for the volatility index, after spiking last Friday it continues to fall back down.  Today it is down -5% back to 15.75.

Trading comment: We sent out a note saying that govt shutdowns have historically not had much of an impact on the stock market.  They are often short-term events that resolve themselves quickly, and if we did get a market pullback it would be a buying opportunity.  We used the weakness late last week and yesterday to add to stocks, and today we are seeing a nice bounce so far.  The S&P 500 found support yesterday at its 50-day average near 1680, and so far today has bounced to 1693.


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