Oct. 08 - Summary: Investors fearing a prolonged D.C. battle locked in profits on this year's winners like Facebook, Netflix and LinkedIn, finding refuge in consumer staples like Wal-Mart; default jitters show up in short-term Treasury rates; JC Penney sales sales improving. Conway G. Gittens reports.
The S&P 500 falls to its lowest close in a month as investor impatience with Washington grows. But the breakdown was felt more acutely in the tech sector with the Nasdaq down roughly 2 percent at its worst level of the day. Investors were taking money off the table -where they made it - mainly in the social networking sector. Just take a look at this year's tech darlings: Facebook, LinkedIn, Netflix, Amazon.com, and Priceline.com - all down significantly. Also take a look at Tesla Motors - giving back just a fraction of its huge rally this year. Oddly enough, investors put a positive focus on consumer-related stocks that could fare better than others if the shutdown causes a consumer clamp down. Dow components Wal-Mart, Procter & Gamble, and Coca-Cola - all ended the day higher. Market reaction was not limited to the stock market. Money market funds are avoiding very short term treasuries, fearing they won't get what's due to them when it's time to get paid. Case-in-point: Tuesday's government debt auction was poorly received and had to be offered at the highest yields since October of 2008. Sam Coffin of UBS: SOUNDBITE: SAM COFFIN, U.S. ECONOMIST, UBS (ENGLISH) SAYING: "There might be some pricing in of default risk as well. We think default is extremely unlikely. The interest payments on the debt are about 10 percent of Treasury's monthly revenues so the likelihood is very small, but it does look like markets are reacting a little bit." J.C. Penney says sales at stores opened at least a year were less worse in September than August and sales trends should continue to improve for the rest of the year. Keep in mind, sales for all of last year tumbled 25 percent. Investors like the sound of progress - making JCP one of the rare stocks to move higher on Tuesday. Looking at the reaction across the Atlantic - stocks were down led by a 1.1 percent decline in the U.K.