On Tuesday, stocks charted a steady course lower as lawmakers failed to reach an agreement to end the partial government shutdown and successfully address the debt limit. And after the close, Fitch Ratings placed the U.S. AAA rating on watch for a downgrade. The Treasury Department said the announcement “reflects the urgency with which Congress should act to remove the threat of default hanging over the economy.”
The 10-year Treasury bond ended the day close to its lows with a yield of 2.72%. The U.S. dollar fell against a group of currencies.
However, volume was light and several influential money managers said that they were buying “favored names at a discount.”
The New York region’s survey of manufacturing activity missed expectations, but that was the only report due to the shutdown.
At Tuesday’s close, the Dow Jones Industrial Average was off 133 points at 15,168, the S&P 500 fell 12 points to 1,698, and the Nasdaq lost 21 points at 3,794. The NYSE traded 690 million shares and the Nasdaq crossed 450 million. On the Big Board, decliners outpaced advancers by 3.3-to-1, and on the Nasdaq, decliners were ahead by 2.4-to-1.
Despite the gloom and doom over the nation’s budget and debt, small-cap stocks are performing as if all of the nation’s problems were solved. The Russell 2000′s bull channel is very much intact, and its MACD indicator is very close to issuing a buy signal, which could vault the index to another new high. Its latest new high was made on Monday.
The NYSE Composite includes all stocks traded on the New York Stock Exchange, thus it is a very broad-based index. Unlike the Russell, it is composed of many investment-grade stocks and yet, like the Russell, it too is in a powerful bull market and even issued a new MACD buy signal on Monday.
Conclusion: The public may be scared to death by the goings-on in Washington, but the savvy big money investors are just as bullish as ever. In other words, the “smart money” is buying while the public remains in money-market instruments.
It appears clear that the market is telling us that the politicians will do what they always do — fail to reach an agreement until absolutely necessary for them to do so. Decision making is not their strong suit.
Tomorrow brings us closer to Thursday’s deadline but could also provide an opportunity to buy stocks on dips. Prepare to buy.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.