It's The Economy Stupid: Market Close

Markets were higher today as investors saw limited effects so far from the Government shutdown.   The Dow Jones was up over 62 points to 15191 and the S&P 500 was up over 9 points to 1690, reversing yesterday’s market declines.  Investors did not like the uncertainty of yesterday, apparently preferring the known of today to the unknown yesterday.  Investors apparently feel that the economic effects of the first partial

government shutdown in 17 years would be limited.   The shutdown will likely put as many as 800,000 federal employees out of work temporarily and cost the U.S. approximately $300 million a day in lost output.

 

Description	Ticker	Last	Change	% Chg Today	% Chg 1Year
STOCK MARKETS
Dow Jones Industrial Average	INDU Index	15191.700	62.0300	0.4100	12.3911
S&P 500 Index	SPX Index	1691.460	9.9100	0.5893	17.2151
NASDAQ 100 Index	NDX Index	3253.045	34.8470	1.0828	16.1754
NASDAQ Composite Index	CCMP Index	3817.982	46.5030	1.2330	22.2852
Russell 3000 Index	RAY Index	1020.780	9.2300	0.9125	19.7911
Russell 1000 Index (Large Cap)	RIY Index	947.750	8.2500	0.8781	19.0408
Russell 2000 Index (Small Cap)	RTY Index	1087.780	13.9900	1.3029	28.9822
Wilshire 5000 Total Market	W5000 Index	18146.530	164.1000	0.9126	20.2057
TREASURIES	% Yield
3 Month Treasury	0.0203		0.0100	200.0000
6 Month Treasury	0.0507		0.0150	50.0000
2 Year Treasury	0.3287	99.844	-0.0234	-0.0235
5 Year Treasury	1.4173	99.797	-0.1719	-0.1719
10 Year Treasury	2.6427	98.781	-0.2656	-0.2682
30 Year Treasury	3.7189	98.500	-0.4219	-0.4265
ENERGY
Crude Oil, Brent Index	Brent Crude	107.720	-0.6500	-0.5998	1.4218
Crude Oil, Louisiana Lt. Sweet	LA Lt Sweet	104.420	-1.0100	-0.9580	-6.4700
Natural Gas, Henry Hub Index	Nat Gas	3.609	0.0490	1.3764	-10.5172
PRECIOUS METALS
Spot Gold $/oz	GOLD	1290.160	-38.7800	-2.9181	-27.5238
Spot Silver $/oz	SILVER	21.177	-0.5205	-2.3989	-39.0796
CURRENCIES
Euro	EUR Curncy	0.739	-0.0004	-0.0541	-4.7429
Japanese Yen	JPY Curncy	97.860	-0.3900	-0.3969	-20.4589
British Pound	GBP Curncy	0.617	-0.0007	-0.1133	-0.4356
Swiss Franc	CHF Curncy	0.905	0.0004	0.0442	3.5986
Canadian Dollar	CAD Curncy	1.033	0.0018	0.1746	-4.8896
Chinese Renminbi	CNY Curncy	6.122	0.0015	0.0245	2.6488
FOREIGN INDICIES
FTSE 100 INDEX	UK	6460.010	-2.2100	-0.0342	10.9882
CAC 40 INDEX	FRANCE	4196.600	53.1600	1.2830	22.1725
DAX INDEX	GERMANY	8689.140	94.7400	1.1024	18.5951
NIKKEI 225 INDEX	JAPAN	14484.720	28.9200	0.2001	64.8604
HANG SENG INDEX	HONG KONG	22859.860	-347.1800	-1.4960	9.6902
SHANGHAI COMP INDEX	CHINA	2174.665	14.6380	0.6777	4.2421
	Last	Chg Today	% Chg Today	3 Mo Tot Ret	6 Mo Tot Ret	YTD Tot Ret
S&P 500 INDEX	1691.460	9.910	0.5893	5.3966	9.546	20.628
S&P 500 CONSUMER DISCRETION	484.540	4.236	0.8820	7.8420	16.837	30.066
S&P 500 CONSUMER STAPLES	412.610	2.370	0.5777	0.5838	1.854	16.682
S&P 500 ENERGY	608.150	3.290	0.5439	5.2333	5.443	16.145
S&P 500 FINANCIALS	270.300	1.930	0.7192	3.1179	11.668	23.825
S&P 500 HEALTH CARE	593.500	7.480	1.2764	7.4701	11.853	29.804
S&P 500 INDUSTRIALS	403.590	2.890	0.7212	8.6930	13.991	24.782
S&P 500 INFO TECHNOLOGY	524.210	4.950	0.9533	6.7390	10.372	14.323
S&P 500 MATERIALS	266.230	1.220	0.4604	9.7500	9.644	13.790
S&P 500 TELECOM SERVICES	150.260	0.960	0.6430	-3.6471	-3.556	6.390
S&P 500 UTILITIES	190.520	0.680	0.3582	1.8030	-2.080	10.448

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

Bridgewater Daily Observations: Risks associated with the budget and debt ceiling debates

John Broussard
State of Louisiana
Department of the Treasury

-----Original Message-----
From: Bridgewater Daily
Sent: Tuesday, October 01, 2013 8:53 AM
Subject: Bridgewater Daily Observations - "In our Observations of September 23rd, we laid out our thoughts on the risks associated with the budget and debt ceiling debates..."

In our Observations of September 23rd (which we have attached), we laid out our thoughts on the risks associated with the budget and debt ceiling debates. These risks are unfortunately playing out. Congress missed its September 30th deadline to pass the continuing resolution to fund federal discretionary spending. So the US now faces a partial government shutdown and the debt ceiling debate has not even begun. As we described, we think the markets were underpricing the risks. As we wrote: Most people have gotten used to Republicans and Democrats fighting each other with increasingly ominous threats that could undermine the wellbeing of the country and, at the same time most people have gotten used to them stepping back from the brink at the last possible moment, most people (hence the markets) assume that policy makers will come up with an agreement at the last possible moment. However, because the repeated false charges at each other by both parties have conveyed impressions of their weakness, both sides feel a greater need to stick to the lines they have drawn in the sand. Since irreconcilable differences are hardening, there is an increased likelihood that Congress and the President will not be able to make the necessary agreements before time runs out. Ironically, this is happening at the same time as the government budget deficit is shrinking toward a sustainable level (i.e., a level that the government's debt/GDP will stabilize) so that the cure might be worse than the disease.

What we're seeing is:
* Congress has not met the midnight deadline for passing a continuing resolution, resulting in the government reducing non-essential discretionary spending, which is about 15-20% of the federal budget, equivalent to about 3-4% of GDP annually.
* What's transpired so far looks to us more like political posturing - framing the vote and deflecting responsibility - than actual substantive negotiations.
* To the extent there is no substantive resolution, these negotiations run the risk of getting comingled with the debt ceiling debate, which is another complication.
* So there's a risk that the shutdown will run more than a day or two. Once Congress goes over the abyss, the incentives to make a quick deal recede until the next hard deadline.
* The next big deadline is tied to the debt ceiling. By October 17, the Treasury estimates that extraordinary measures will be exhausted and the debt ceiling will be reached.
* These risks are starting to flow into financial markets.