Stocks Retreat On Government Shutdown Concerns

Stocks returned to negative territory on Friday, as investors’ concerns about a partial government shutdown reinforced risk aversion.

Stocks declined moderately on Friday, as the September 30 budget deadline drew closer and the likelihood of a partial government shutdown persisted, despite passage of a bill by the Senate, which would fund federal agencies for the first 90 days of the government’s fiscal year (which begins on October 1).

The final Thompson Reuters Consumer Sentiment Index for September fell 5.6 percent to 77.5 from August’s 82.1. The report’s Commentary, provided by chief economist Richard Curtin, focused on consumers’ attitudes concerning the current display of dysfunctional behavior on Capitol Hill:

“Although consumers have come to expect the Congressional theater that is now playing, they don’t expect the President and Congress to be careless enough to allow a government shutdown due to intransigence on the federal budget and debt ceiling. If consumers come to believe a shutdown is probable, it may generate a precautionary response that would significantly slow spending and overall economic growth. Although the shock and dismay expressed in 2011 has thus far been absent, the data indicate that consumers are headed back down this negative path. Consumer confidence is fragile enough without this added source of economic uncertainty.”

The Dow Jones Industrial Average (DIA) lost 70 points to finish Friday’s trading session at 15,258 for a 0.46 percent drop. The S&P 500 (SPY) fell 0.41 percent to close at 1,691.

The Nasdaq 100 (QQQ) dipped 0.12 percent to finish at 3,230. The Russell 2000 (IWM) declined 0.30 percent to end the day at 1,075.

In other major markets, oil (USO) fell 0.32 percent to close at $36.96.

On London’s ICE Futures Europe Exchange, November futures for Brent crude oil declined 87 cents (0.80 percent) to $107.41/bbl. (BNO).

December gold futures advanced $12.70 (0.96 percent) to $1,336.80 per ounce (GLD).

Transports endured significant turbulence on Friday, with the Dow Jones Transportation Average (IYT) falling 0.62 percent.

In Japan, rising gasoline costs sent consumer prices (excluding food) 0.8 percent higher during August on a year-over-year basis. The rise of inflation increased the exchange rate for the yen. The price of gasoline reached its highest level since 2008. Meanwhile, salaries (excluding bonuses and overtime pay) declined for the fourteenth consecutive month, falling 0.4 percent on a year-over-year basis. Yen strength got a boost when Finance Minister Taro Aso spoke out against Prime Minister Abe’s proposed corporate tax cut, pointing out that the government would be forced to seek alternative sources of revenue to cover the shortfall. The yen rose to 98.60 per dollar just before Friday’s closing bell in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average declined 0.26 percent to 14,760 (EWJ).

In China, stocks made a slight advance after the government posted a “free trade zone overall test program notice” on its website, discussing the “liberalization measures” which allow for “qualified foreign financial institutions to establish foreign banks, in line with the conditions of private capital and foreign financial institutions to set up joint venture banks.” The Shanghai Composite Index advanced 0.20 percent to 2,160 (FXI). Hong Kong’s Hang Seng Index climbed 0.35 percent to end the session at 23,207 (EWH).

European stocks made a slight retreat after an Italian bond auction drove the nation’s ten-year bond yield from 4.33 percent to 4.42 percent, as the crisis concerning “The Thing That Wouldn’t Leave” (a/k/a Silvio Berlusconi) continued. Berlusconi’s sycophants in the People of Freedom Party have threatened to resign en masse if Berlusconi is forced out of the nation’s Senate because of his conviction for fraud. Italy’s Senate will vote on October 4, concerning whether the boot-shaped nation’s Upper House will give Berlusconi the boot. Both the nation’s President, Giorgio Napolitano, and Prime Minister Enrico Letta are standing firm against the bluff (EWI).

The Euro STOXX 50 Index finished Friday’s session with a 0.12 percent decline to 2,919 – remaining well above its 50-day moving average of 2,817. Its Relative Strength Index is 64.19 (FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,680 after finishing Friday’s session with a 0.41 percent decline to 1,691. Its Relative Strength Index fell from 56.71 to 53.14. Although the MACD remains above the zero line, it has declined to the same level as the signal line, suggesting the likelihood of a continued retreat. Potential Bearish MACD Crossover on S&P 500

For Friday, all sectors were in the red, except for the healthcare sector. The materials sector took the hardest hit, falling 1.20 percent.

Consumer Discretionary (XLY): -0.02%

Technology: (XLK): -0.71%

Industrials (XLI): -0.66%

Materials: (XLB): -1.20%

Energy (XLE): -0.39%

Financials: (XLF): -0.37%

Utilities (XLU): -0.64%

Health Care: (XLV): +0.02%

Consumer Staples (XLP): -0.62%

Bottom line: Stocks retreated on Friday as investors pondered the likelihood that the federal government would undergo a partial shutdown as a result of an impasse in budget negotiations.

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