When little orphan Annie sang, “Tomorrow, tomorrow, I love you tomorrow, you’re only a day away,” I don’t think this is what she had in mind.
Associated Press The U.S. government will shut down tomorrow, unless the House and the Senate, which continue to toss budget bills back and forth, reach a compromise. That fact has caused stocks to tumble this morning, prolonging the pain of last week’s drop. The S&P 500 has fallen 0.7% to 1,679.28 at 10:08 a.m., while the Dow Jones Industrials have dropped 0.8%, or 128 points, to 15,130.61.
Newedge USA’s Robbert van Batenburg explains the situation:
Today the fight over the Continuing Resolution to keep the Federal government funded comes down to the wire. If Congress doesn’t strike a deal today, the nonessential functions of the Federal government start shutting down at midnight.
The Senate reconvenes at 2pm today and to vote on the most recent House bill. This bill passed the House Saturday and leaves the government funded for 70 days but calls for 1-yr delay of Obamacare. Defeat of this bill is likely at which point Republicans in the House of Representatives will need to form a new bill to avert a government shutdown.
The Lindsey Group’s Peter Boockvar looked at what happened the last time the government closed:
To look at the past for some current market guidance, the two government shutdowns in 1995-1996 had almost no impact on equity markets. The first shutdown lasted from November 13th to the 19th and the S&P's were up 4 pts. After the temporary fix ended and the government shut down for a 2nd time from Friday December 15th 1995 to January 6th 1996, the market fell 1.5% on Monday December 18th but ended January 6th little changed from its close on December 15th. Of course the circumstances are much different today in many ways but markets should assume that a deal will come sooner rather than later because the negative consequences get too large the longer this all lasts, particularly with the debt ceiling.
Belus Capital Advisors Brian Sozzi notes signs of investor complacency in sector performance. He writes:
Shares of consumer staples (the old standby "defensives", although I have long thought in an economic pullback U.S. households trade down to private label) and dollar stores (exposed to an earnings growth rate acceleration amid a crumbling consumption backdrop) continue to track (aka "correlate") with the major equity indices. This is investors showing me front and center that portfolios continue to be overweight economic recovery (aka cyclicals and industrials; the latter deserves some froth removal considering two weeks of consolidation in European indices) plays rather than the defensive companies that stand to benefit from a less prosperous economic climate. In my view, the market logging losses in six of the last seven sessions is the initial realization on the part of strategists that portfolios are ill-prepared for near-term volatility…
Tomorrow indeed.
Cal-Maine Foods (CALM) has dropped 3% to $47.45 after the company reported a profit of 36 cents, below forecasts of 49 cents.
Omnova Solutions (OMN) has fallen 3.8% to $8.36 after it said it earned 19 cents a share, missing forecasts of 22 cents.
Chipotle Mexican Grill (CMG) has gained 1.6% to $425.84 after it was upgraded to Overweight from Equal Weight by Morgan Stanley, while Panera Bread (PNRA) has fallen 1.7% to $161.25 after the investment bank downgraded it to Equal Weight from Overweight.
International Paper (IP) has fallen 2.1% to $44.47 after it was downgraded to Neutral from Buy at Merrill Lynch.
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