Closing Market Summary: Stocks Slump as Budget Deal Remains Elusive
The S&P 500 settled lower by 0.7% after contradicting headlines from Washington fostered volatile price action throughout the session. Equity indices displayed modest losses at the open, but were able to turn positive by late afternoon. The rebound was predicated on optimism associated with budget talks in Washington after Senate Majority Leader Harry Reid was quoted as saying ‘tremendous progress' had been made. However, contradicting headlines from House Republicans began pouring in during the early afternoon, and House Speaker John Boehner called the Senate proposal a ‘hand grenade' during a closed-door meeting with Republican lawmakers. To counter this ‘hand grenade,' the House is expected to vote on its own bill later today. Selling pressure intensified during the final 90 minutes of the session amid headlines indicating the Senate has halted its negotiations pending the outcome of the House vote. California Senator Dianne Feinstein weighed in on the situation, saying budget talks have ‘all fallen apart.'
All ten sectors ended in the red with countercyclical consumer staples (-0.9%) and utilities (-1.4%) leading to the downside. Among staple stocks, Coca-Cola (KO 37.66, -0.25) lost 0.7% following its in-line earnings report.
Elsewhere, the industrial sector slid 0.9% as the underperformance of defense contractors outweighed the relative strength of transports. FLIR (FLIR 28.59,-4.58) tumbled 13.8% after announcing restructuring plans and issuing below-consensus guidance while the broader PHLX Defense Index slumped 2.3%. Meanwhile, the Dow Jones Transportation Average ended with a modest loss of 0.2%, drawing strength from the 4.1% gain in the shares of FedEx (FDX 120.08, +4.71) after the company authorized a 32 million share buyback program.
Also of note, the financial sector (-0.8%) underperformed the broader market after Citigroup (C 48.86, -0.74) reported a 7.8% year-over-year decline in revenue. With regard to commodities, crude oil fell 1.3% to $101.08 per barrel while gold futures added 0.3% to $1281.00 per troy ounce. Treasuries ended near their lows with the 10-yr yield up four basis points at 2.73%. More notably, short-term debt was pressured with traders dumping the paper amid the increased probability of a default. The 4-week yield ended higher by 6.5 basis points at 0.317% while both the 3-month (+3 bps to 0.09%) and 6-month (+5 bps to 0.124%) bills were the subject of some selling.
Trading volume was below average as 690 million shares changed hands on the floor of the New York Stock Exchange. On the economic front, today's data pointed to a bit of a slowdown in manufacturing growth in the New York Fed region as The Empire Manufacturing Survey for October registered a reading of 1.5. This was down from the prior month's reading of 6.3 while economists polled by had expected that the survey would slip to 4.5. As a result of today's decline, the S&P 500 trimmed its year-to-date gain to 19.1%.