Shutdown politics to dominate investor attention

Shutdown politics to dominate investor attention
Risk of government closure sends stocks lower for week; jobs report ahead
SAN FRANCISCO (MarketWatch) — Investors will need to fasten their seat belts in the coming week because whether or not the government shuts down Tuesday, the process is going to be bumpy.

Markets have already been responding to the political posturing. In the past week, stocks posted their first weekly drop since August, with the Dow Jones Industrial Average (DJI JIA) and the S&P 500 Index (SNC:SPX) closing down 1.3% and 1.1%, respectively. The Nasdaq Composite Index (NASDAQ:COMP) managed to squeak by with a 0.2% gain.

On Friday, President Barack Obama urged House Republicans to avoid a government shutdown, stressing that even the threat was dragging on the economy. Earlier in the day, the Senate voted 54-to-44 on a measure to keep the government funded until Nov. 15 without provisions to defund Obama’s health-care law that had passed in the House earlier.

“Right now, we’re just going through this kabuki dance before midnight Monday because the government could shut down Tuesday,” said Phil Orlando, chief equity market strategist at Federated Investors.
How low can stocks go?

Expect the S&P 500, which closed at 1,691.75 on Friday, to slide between the range of 1,600 and 1,650 over the next month — a drop of 2.5% to 5.5% — depending on how ugly things get in D.C., Orlando said. The 1,600 limit of the range becomes likely if there hasn’t been any debt-ceiling resolution by Oct. 17, when Treasury Secretary Jacob Lew said the U.S. will be dangerously low on cash to pay its bills.

In comparison, the last time there was a government shutdown was Dec. 13, 1995 to Jan. 10, 1996, and the S&P 500 dropped 3.7% over that period, only to snap back up 10.6% by mid-February, according to a recent note by S&P Capital IQ. http://www.marketwatch.com/story/shutdown-pol...2013-09-29