U.S. stocks drifted lower on Thursday amid growing fears of a possible government shutdown on Friday night. A breakdown in bi-partisan negotiations concerning immigration has worsened, with a pre-shutdown blame game commencing with President Donald Trump and Congressional Democrats all angling to blame the other party for what looks like an inevitable standoff.
Issues at heart include military funding, funding for a border wall, immigration and funding for children’s healthcare.
In the end, the Dow Jones Industrial Average lost 0.4%, the S&P 500 lost 0.2%, the Nasdaq Composite lost a fraction and the Russell 2000 lost 0.6%. Crude oil weakened; gold lost $12.70 per ounce; treasury bonds were mixed and the U.S. dollar was weak.
Decliners outpaced advancers by a 2.6-to-1 ratio as 180 NYSE issues made new highs vs. 93 new lows. Coal stocks led the way with a near-10% gain while aluminum and industrial suppliers were the laggards. General Electric Company (NYSE:GE) lost another 2.9% on lingering investor disappointment with turnaround plans. Alcoa Corp (NYSE:AA) fell 7%.
The Q4 earnings season is heating up now, with International Business Machines Corp. (NYSE:IBM) and American Express Company (NYSE:AXP) reporting after the close. IBM beat on the top- and bottom-line, but disappointed on profitability and an over reliance on a low tax rate to boost earnings. Shares are down 4.4% in after-hours trading. AXP is down 2.2% after beating on the top- and bottom-line results after suspending its share buyback program to rebuild its capital base.
Before the open, Morgan Stanley (NYSE:MS) continued the recent theme of Wall Street banks reporting tepid trading results driven by a lack of volatility.
Conclusion
All eyes are on Washington now as the hopes of yet another short-term funding opportunity dim. Politico is reporting that GOP Senate Majority Leader McConnell is preparing for a shutdown and could stage various votes over the weekend to embarrass Democrats heading into the mid-term elections.
A number of Republican senators, including Rand Paul (R-KY) have said they would vote against a stopgap spending bill. And it looks like any bill may not get out of the House in the first place.
All of this brings back memories of the 2011 debt ceiling showdown and 2013 shutdown and fiscal cliff standoff. Until this point, political developments on balance were a market tailwind given the post-election hopes of pro-growth legislation, capped by the passage of the GOP’s tax cut bill. But now, with another election looming and Republicans and Democrats squaring off, it looks like a net negative now.
This puts the recent weakness in the U.S. dollar and U.S. Treasury bonds in context since it’s a reflection of waning confidence in the United States.
On a technical basis, it was notable that seemingly evergreen stocks like Boeing Co (NYSE:BA) actually turned lower and finished in the red today — a possible sign that the historic momentum-driven uptrend could be set to end.
Check out Serge Berger’s Trade of the Day for Jan. 19.
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.
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Anthony Mirhaydari is the founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
