Back to top

Economic Highlights

Oct 7: Markets May Feel Shutdown Effect

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Stocks haven’t reacted much to the Washington discord thus far, hoping that sanity will eventually return at the last minute. That has been the norm in the recent past. In all recent political fights – the Fiscal Cliff, the budget sequester and the 2011 debt ceiling fight – politicians took the country to the edge before stepping back.

But the markets are starting to get worried, with the shutdown now in its second week and the October 17th debt ceiling deadline fast approaching. The protagonists came across as stubbornly standing their ground in the Sunday talk shows. Disconcertingly, we didn’t get the impression that any negotiations were or are going on behind the scenes. The Speaker is apparently waiting for a call, but the other side doesn’t see the point of making that call. Let’s hope there are still enough centrists in the political system to bridge the divide and bring the two sides to the table.

The DC Drama has sucked the oxygen from everything else, with the shutdown robbing us of economic data. We didn’t get the jobs report last week and this week’s Retail Sales report wouldn’t come through either. The key report that we will get this week is the minutes of the Fed’s last meeting, when they surprised everyone by not Tapering.

The minutes will give us a good sense of how close the no-Taper call actually was, which will help set expectations about the Fed’s coming meeting. The odds of a Taper announcement in this month’s Fed meeting are low now, if for no other reason than the paucity of any data that the Fed can rely upon in making that call. That’s perhaps the only thing positive about the current shutdown – the absence of data could result in further Taper delay.

The 2013 Q3 earnings season gets underway this week, with reports from Alcoa (
AA) and Yum Brands (YUM) on Tuesday after the close and J.P. Morgan (JPM) and Wells Fargo (WFC) on Friday. Hopefully, the shutdown will be behind us before the earnings reporting season gets into high gear next week.

Expectations for earnings growth in Q3 remain low, with total earnings for the S&P 500 expected to be up +1.1% from the same period last year. As has been happening repeatedly in recent quarters, estimates came down sharply as the quarter unfolded. The current +1.1% growth in Q3 is down from +5.1% in early July, with negative guidance from management teams the primary driver of estimate cuts. This has become a recurring theme for more than a year now, with management teams overwhelmingly guiding lower for the following quarter.

Given the elevated expectations for Q4 and beyond (earnings for the S&P 500 are expected to be up almost +9%), it will be interesting to see if we will get a repeat performance or something new this time around. I expect more of the same, with negative guidance prompting estimate cuts for Q4 and beyond.

The market hasn’t cared much thus far about negative estimate cuts. But will it finally start paying attention? We will find out in the next few weeks.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
BITAUTO HOLD BITA 33.49 +8.84%
VALEO SA SPO VLEEY 68.09 +4.22%
DIXIE GROUP DXYN 14.64 +4.13%
INTERNATIONA ICAGY 32.67 +3.39%
CANADIAN SOL CSIQ 26.01 +3.34%