Nike Surges While Dow Drops on Fear of Government Shutdown

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

Nike's (NYSE: NKE  ) stock is up nearly 5% today after walloping earnings expectations, but that jump is not enough to pull the Dow Jones Industrial Average (DJINDICES: ^DJI  ) into positive territory. Fear continues to build of a government shutdown if lawmakers can't come to agreement on a budget. As of 1:15 p.m. EDT the Dow was down 62 points to 15,246. The S&P 500 (SNPINDEX: ^GSPC  ) was down seven points to 1,691.

Twenty-four of the 30 Dow stocks are down for the day, with heavyweights IBM and Goldman Sachs both dropping roughly 1.5%. New Dow component Nike reported earnings yesterday after the market close that flew past analyst expectations. Nike's earnings per share grew 34% to $0.86; analysts had expected earnings of $0.78. Revenue grew 8% to $6.97 billion, in line with analyst expectations. Fool contributors Daniel Miller and Michael Lewis have more on Nike's earnings.

There were three U.S. economic releases today.

Report

Period

Result

Previous

Personal income

August

0.4%

0.2%

Consumer spending

August

0.3%

0.2%

PCE inflation past 12 months

August

1.2%

1.3%

Core PCE inflation past 12 months

August

1.2%

1.1%

University of Michigan Consumer Sentiment Index

September

77.5

76.8

The key measures here are the Personal Consumption Expenditures and Core PCE inflation numbers. PCE is the Federal Reserve's favored measure of inflation. While both were up slightly in August, each rose just 1.2% over the past 12 months. This shows that the Fed's efforts to stimulate the economy have not led to inflation, as many had feared. Inflation has been slowing over the past year and is well below the Federal Reserve's target of 2% to 2.5%.

The big focus for the weekend is that lawmakers have until midnight Monday to pass some sort of budget, otherwise the government will shut down. The House passed a continuing resolution that extends the budget but defunds Obamacare. The Senate is expected to pass a continuing resolution this afternoon or tomorrow that includes funding for Obamacare, putting the House on the hook for either approving the continuing resolution with Obamacare funding or shutting down the government. The market can handle a government shutdown, but that possible outcome should leave investors more worried about the far larger potential obstacle of raising the debt ceiling.

The government is expected to hit the debt ceiling in mid-October. Lawmakers need to raise the upper limit or risk a catastrophe that could include a technical default on the country's debt. The 2011 congressional fight over the debt ceiling was one of the factors that caused the U.S. to lose its "AAA" rating from Standard & Poor's. President Barack Obama has repeatedly stated that raising the debt ceiling is non-negotiable, while Republicans hope to use the debate to get some concessions from Democrats.

For more on the debt ceiling and the implications it has for investors, The Motley Fool's new free report, "Everything You Need to Know About the National Debt," walks you through with step-by-step explanations about how the government spends your money, where it gets tax revenue from, the future of spending, and what a $16 trillion debt means for our future. Click here to read the full report!


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