Equities ETFs Plunge on IMF Outlook, Political Gridlock

Joel Anderson  |

Equities ETFs took a hit on the continued government shutdown, concern over the upcoming debt-ceiling fight, and the downward revision of global economic growth expectations from the International Monetary Fund (IMF). Markets slumped for the second straight day, losing more ground as the day wore on, with the Dow’s losses nearing 0.85 percent, the S&P losing over 1 percent, and the Nasdaq off nearly 2 percent by the late afternoon. Joining the bearish day were some of the highest-volume ETFs that track equities. The SPDR S&P 500 Trust ($SPY) fell almost 0.85 percent, the Select Sector Financial SPDR Fund ($XLF) lost just over 0.85 percent, and the iShares MSCI Emerging Markets Index (EEM) lost a little over 0.6 percent.

IMF Says Global Economy Growing Slower Than Anticipated

The IMF announced that it expects global GDP growth to reach 2.9 percent by the end of the year, revising their July estimate downward by 0.3 percent. It also projected 2014 growth to be 3.6 percent, down from the 3.8 percent it predicted in July.

The IMF cited concerns about slowing growth in many emerging economies, including Brazil, China, and India, as the cause for the gloomier outlook. This came despite improved projections for some advanced economies like the United Kingdom and United States.

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“The world economy has entered yet another Transition,” said Olivier Blanchard, the IMF’s Economic Counsellor. “Advanced economies are gradually strengthening. At the same time, growth in emerging market economies has slowed. This confluence is leading to tensions, with emerging market economies facing the dual challenges of slowing growth and tighter global financial conditions.”

The report also expressed continued concern over the potential consequences of American political battles.

“The effects of any failure to repay the debt would be felt right away, leading to potentially major disruptions in financial markets, both in the U.S. and abroad,” Blanchard said during a press conference. “We see this as a tail risk, with low probability, but, were it to happen, it would have major consequences.”

ETFs Down

Along with the leading ETFs, many other popular plays showed significant movement on Tuesday. The iShares Russell 2000 Index ($IWM) lost nearly 1.5 percent, the Direxion Daily Small Cap Bull 3X Shares ($TNA) plunged almost 4 percent, and the Powershares QQQ Trust ($QQQ) fell over 1.6 percent. Meanwhile, ETFs tracking market volatility were having a banner day as markets roiled with uncertainty. The iPath S&P 500 VIX Short Term Futures (VXX) was up over 3 percent.



[Image Courtesy of Wikimedia Commons]

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