Mingze Wu | Oct 01, 2013 01:47AM ET
US stocks fell yesterday due to the broad risk aversion sentiment brought by the possible partial shutdown of US Government, with S&P 500 falling by 0.60% while Dow 30 continue to be the more bearish one at -0.84%. The declines sound meek, but the truth is even meeker. Looking at Futures, both S&P 500 and Dow 30 traded much lower on Monday off market hours, with S&P 500 reaching a low of 1,672.8 just before the bell rung at 9:30am EDT. Prices were heavily under pressure during Asian and European hours due to weaker economic news released. For Asia we have HSBC/Markit Manufacturing PMI (Final) coming in below the initial Flash estimates. From the European side we have German Retail Sales that came up short of analysts expectations. Both news pushed the already low risk appetite down further, hence it is no surprise that pre US open prices were so bearish.
What is more interesting is that US stocks actually traded higher during the first few hours of yesterday’s session. S&P 500 reached a high of 1,686 while Dow 30 hit above 15,170 before dropping back lower by the end of the session. Yesterday’s mild losses are simply the result of the huge gap lower during Asian hours (as seen on Futures). If we look at US session alone, the day appears to be much more bullish with closing prices higher than that of opening for a net daily gain.
S&P 500 Hourly Chart
Dow 30 Hourly Chart
Fundamentally, it seems that market may have already priced in a partial US Governmental shutdown, which is not that scary anyway. S&P (the rating agency) announced yesterday that they are keeping US credit rating of AA+ intact for now despite the latest kerfuffle. This is significant as S&P was the only one that felled US triple A rating back in 2011. Therefore, it stands to reason that even in the event that no deal is made in the next 1-2 hours, it is unlikely that market will go into a crazy sell-off. This would also mean that the risk remains on the upside, where if there is any resolution to this issue, we could potentially see overreaction towards the bullish side which may send Dow 30 back up towards 15,275 and S&P 500 into the 1,692 – 1,702 band.
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