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Equities ETFs Nosedive on Potential US Debt Fight

By  +Follow October 3, 2013 6:11AM
Tickers Mentioned:

Equities ETFs plunged alongside the markets on Thursday morning as dire predictions about the consequences of another fight over the debt ceiling, paired with the continued government shutdown, led to a major sell-off. This took major ETFs that track equities with them, with the SPDR S&P 500 ($SPY) falling as much as 1.3 percent by noon. However, news that John Boehner has reportedly told Republican members of congress that he’ll be willing to forego the “Hastert Rule” (the informal agreement that no bill will be brought to the floor of the house without a majority of Republican votes) to avoid a default sparked an early afternoon rally that took losses back down to just over 0.75 percent.

Treasury: Default on National Debt Could Cause Stock Market Crash, Recession

The Treasury Department has been making a string of warnings to congress in hopes of preventing another difficult battle over the debt ceiling. The last extended fight ultimately resulted in a downgrade of American debt and a major decline in the equities market. Today, the department released a report highlighting what it viewed as a potential “catastrophe.”

“Not only might the economic consequences of default be profound, those consequences, including high interest rates, reduced investment, higher debt payments, and slow economic growth, could last for more than a generation,” the report said.

“In the event that a debt limit impasse were to lead to a default, it could have a catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth -- with many private-sector analysts believing that it would lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression.”

Treasury Secretary Jack Lew joined the chorus, urging congress not to delay action.

‘‘As we saw two years ago, prolonged uncertainty over whether our nation will pay its bills in full and on time hurts our economy,’’ Lew said in a statement. ‘‘Postponing a debt ceiling increase to the very last minute is exactly what our economy does not need — a self-inflicted wound harming families and businesses.’’

Equities ETFs, Return on US Debt Fall

In a classic example of skewed market logic, the concern over the potential for the United States defaulting on government debt had investors scrambling to buy more government debt. While stocks slid, investors looking to reduce risk have been buying bonds, with the yield on 10-year T-notes falling 3 basis points to 2.6 percent yesterday.

Other ETFs tracking the equities market were on the move with a high trading volume. The iShares Russell 2000 Index ($IWM) was off almost 1.25 percent, the Select Sector Financial Slct Str SPDR ($XLF) lost about 0.75 percent, and the Direxion Daily Small Cap Bear 3X Shares ($TZA) was up over 3 percent. Also making big moves were ETFs tracking volatility in the stock market, with the iPath S&P 500 VIX Short Term Futures (VXX) gaining almost 2.5 percent and the VelocityShares Daily Inverse VIX Short Term ETN (XIV) shedding just over 2.5 percent.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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Results for SPY
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28 Aug 14 22:29:43
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28 Aug 14 22:21:08
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28 Aug 14 22:14:23
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28 Aug 14 22:04:59
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28 Aug 14 22:04:34
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28 Aug 14 22:04:31
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28 Aug 14 22:04:17
RT @seeitmarket: Nasdaq 100 Breaks Out: Follow The Leader? http://t.co/oPyD3cDchL by @andrewnyquist $NDX $QQQ $SPY $STUDY
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28 Aug 14 22:03:55
RT @ThinkingAlpha: US STOCKS GET EVEN MORE BULLISH... Read the enitre post from our forum here: http://t.co/iwBM6h6vN3 $SPX $SPY $UUP $TLT …
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28 Aug 14 22:03:46
RT @JLyonsFundMgmt: Down Day Vs. Up Day SPY Volume @ Extreme Skew $SPY $SPY http://t.co/wTMgfmGHS3 (post) http://t.co/fKprUxhfkz
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28 Aug 14 22:03:43
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28 Aug 14 22:03:33
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28 Aug 14 22:03:30
RT @TradersExpo: $SPY $QQQ $IYT $IWM $XLE The Week Ahead: A September Buying Opportunity? http://t.co/YjOKXwbbFG
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28 Aug 14 22:03:25
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28 Aug 14 22:03:19
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28 Aug 14 22:03:14
RT @Market_Time: on the other hand, in 2007 volatility started rising with lower prices in 07H2: bear market started in 08Q1 $SPY http://t.…
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28 Aug 14 22:03:10
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28 Aug 14 22:03:03
RT @AlmanacTrader: Blog Post: Last Five Trading Days of August Generally Disappointing $SPY $DIA $QQQ http://t.co/psMsSf2lrW
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28 Aug 14 22:02:39
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28 Aug 14 22:02:16
RT @AlmanacTrader: Blog Post: On the Other Hand, Low Interest Rates Could Be Around Much Longer $SPY $DIA $QQQ… http://t.co/KDyfZrU5tN
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28 Aug 14 22:02:02
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28 Aug 14 22:01:43
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28 Aug 14 22:01:29
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28 Aug 14 22:01:22
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28 Aug 14 22:01:17
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28 Aug 14 22:01:08
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28 Aug 14 22:00:48
RT @RedDogT3: Here Is a link to today's video recap and look ahead $spy $qqq $aapl $googl $nflx $fb $lnkd $twtr $ibb http://t.co/cWmGaYq3tG
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28 Aug 14 22:00:43
RT @AlmanacTrader: Blog Post: Can Market Break Free of Sixth Year Hold $SPY $DIA http://t.co/aFFhx2djcd
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28 Aug 14 22:00:40
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28 Aug 14 22:00:37
RT @SJosephBurns: All the indexes are getting extended way above even their 5 day ema. Incredible momentum so far. $SPY $DIA $IWM $QQQ
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28 Aug 14 22:00:17
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28 Aug 14 22:00:10
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28 Aug 14 21:59:22
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28 Aug 14 21:58:14
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28 Aug 14 21:43:34
RT @afraidtotrade: Stepping Inside the Straight Up Rally for the $SPX $SPY http://t.co/F8ijuSwR5Z #mkt $$
By  +Follow October 3, 2013 6:11AM



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