Stocks Continue To Fall On Washington Standoff

Stocks fell more significantly on Tuesday as investors decided against waiting-out the standoff in Washington.

The major stock indices made significant declines in excess of one percent on Tuesday, as an increasing number of investors decided to sell their stocks, rather than wait-out the standoff in Washington. The Chicago Board Options Exchange Volatility Index (VIX) jumped 4.79 percent to 20.34 – its highest closing level since June 20.

The Dow Jones Industrial Average (DIA) lost 159 points to finish Tuesday’s trading session at 14,776 for a 1.07 percent decline. The S&P 500 (SPY) fell 1.23 percent to close at 1,655. SP500 on “Thin Ice!”

The Nasdaq 100 (QQQ) sank 1.92 percent to finish at 3,153. The Russell 2000 (IWM) dropped 1.74 percent to close at 1,047.

In other major markets, oil (USO) advanced 0.46 percent to close at $37.31.

On London’s ICE Futures Europe Exchange, December futures for Brent crude oil advanced 48 cents (0.44 percent) to $109.33/bbl. (BNO).

December gold futures fell $5.20 (0.39 percent) to $1,319.90 per ounce (GLD).

Transports rode the Highway to Hell on Tuesday, with the Dow Jones Transportation Average (IYT) falling 1.46 percent.

In Japan, stocks made a modest advance as the misguided belief that the standoff in Washington was nearing a resolution pushed the dollar higher against the yen. The yen weakened slightly to 97.13 per dollar during Tuesday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average advanced 0.30 percent to 13,894 (EWJ).

In China, stocks advanced after the nation’s Ministry of Commerce reported that retail sales during the National “Day” festival week exceeded last year’s holiday sales by more than 13 percent. Stocks received an extra boost after a report indicated that during the first week of October, new home sales in Beijing were nearly 100 percent higher than they were for the same period last year. The Shanghai Composite Index jumped 1.08 percent to close at 2,108 (FXI). Hong Kong’s Hang Seng Index surged 0.89 percent to end the session at 23,178 (EWH).

In Europe, stocks retreated after Destatis reported that German factory orders declined by another 0.3 percent during August, after falling 1.9 percent in July. Economists had been expecting an increase of just over one percent (EWG). Bearishness was reinforced by a less-than-enthusiastic remark about Europe from the latest World Economic Outlook, released by the International Monetary Fund on October 7:

The core economies of Europe show some signs of recovery. This is the result not of recent major policy changes but of a change in mood, which nonetheless could be largely self-fulfilling if consumers and firms decide to increase spending. Southern periphery countries are still struggling, however. Progress on improving competitiveness and increasing exports is not yet strong enough to offset depressed internal demand. In both the core and the periphery, there is lingering uncertainty about bank balance sheets, which should be reduced by the promised review of banks’ asset quality. Taking the longer view, just as for Japan, structural reforms are urgently needed to invigorate the anemic potential growth rates that plague the region.

The Euro STOXX 50 Index finished Tuesday’s session with a 0.67 percent decline to 2,903 – remaining above its 50-day moving average of 2,842. Its Relative Strength Index is 54.52 (FEZ).

Technical indicators revealed that the S&P 500 fell further below its 50-day moving average of 1,678 after finishing Tuesday’s session with a 1.23 percent fall to 1,655. Its Relative Strength Index dropped from 46.06 to 39.19. The MACD continues to sink below the signal line and is now about to cross below the zero line, suggesting the likelihood of a continued retreat.

For Tuesday, most sectors finished solidly in negative territory except for the utilities sector, which advanced 0.70 percent, and the consumer staples sector, which remained unchanged.

Consumer Discretionary (XLY): -1.58%

Technology: (XLK): -1.59%

Industrials (XLI): -1.13%

Materials: (XLB): -1.59%

Energy (XLE): -1.07%

Financials: (XLF): -1.26%

Utilities (XLU): +0.70%

Health Care: (XLV): -1.44%

Consumer Staples (XLP): (unchanged)

Bottom line: Increasing concern that no deal will be reached to raise the debt ceiling in time to avoid a sovereign default sent stock prices lower on Tuesday, leading many to investors to sell their stocks, rather than waiting-out the standoff.

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