Global stocks drop as shutdown looms; Treasuries erase gains

Economy Concern

Failure to approve funding to keep the government open and to raise the debt ceiling would have a destabilizing effect on the economy, President Barack Obama said in a televised statement Sept. 27. Closing the government would cut fourth- quarter economic growth by as much as 1.4 percentage points depending on its length, according to economists from Moody’s Analytics Inc. to Economic Outlook Group LLC.

Procter & Gamble Co., Nike Inc. and Coca-Cola Co. lost at least 1.5% to lead declines in 29 of 30 stocks in the Dow Jones Industrial Average. All 10 of the main industry groups in the S&P 500 fell, led by consumer-staples and energy companies.

While the S&P 500 Index slipped 1.1% last week, the benchmark index has added 3.6% this month to extend its quarterly gain to 5.3% as the Federal Reserve kept its $85 billion of bond-buying a month. The central bank will pare the size of purchases in December, according to 59% of 41 economists in a Sept. 18-19 survey.

1954

U.S. stocks are trading virtually in lockstep with 1954, the best year for American equity and the time when shares finally recovered all their losses from the Great Depression.

The S&P 500’s returns in 2013 are tracking day-to-day price moves in 1954 almost identically, according to data compiled by Bespoke Investment Group and Bloomberg. In no other year are the trading patterns more similar to 2013 since data on the index began 86 years ago. The correlation coefficient between this year and 1954, when the benchmark gauge rose 45%, is 0.95 out of a maximum of 1.

American equities this year climbed above the 2007 peak before the global financial crisis, like they did in 1954 when the S&P 500 reached a new high for the first time since 1929. While bearish investors say the correlation is irrelevant, bulls say the index will keep rising the way it did 59 years ago, as investors regain faith in U.S. profits.

Treasuries, Yen

Ten-year Treasury yields declined as much as four basis points to 2.59% earlier, the least since Aug. 12, after falling 11 basis points in the five days to Sept. 27. Credit- default swaps on U.S. Treasuries rose 3.2 basis points to 35.15, the highest since May, according to prices compiled by Bloomberg.

The yen was little changed at 98.23 per dollar after earlier strengthening as much as 0.7%. The Japanese currency erased gains against the shared European currency after earlier rising as much as 1.1% to 131.38 per euro on demand for safety after Italy’s leaders stopped short yesterday of dissolving Prime Minister Enrico Letta’s five-month old administration.

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