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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.
Markets have known for some time that the debt ceiling would be a contentious, political issue, one capable of rattling investors and sparking sell-offs if left unresolved. Well, the Treasury is now just 10 days away from defaulting on its debt, and investors are officially rattled. A default, by most estimates, would be catastrophic to global markets; Warren Buffett has gone so far as to compare the potential effects to nuclear weapons. A spooked Dow Jones Industrial Average (DJINDICES: ^DJI ) dropped 136 points, or 0.9%, to end at 14,936 Monday.
At least it wasn't all bad news for the blue-chip index today. The shift into lower-risk holdings was good for the telecom sector, and AT&T (NYSE: T ) stock in particular, which added 0.7% to lead the Dow Monday. Many telecom stocks pay high dividends, which was AT&T's appeal today, boasting a 5.3% annual payout. In fact, the top three blue-chip performers today also paid the three highest dividends. Funny how that works.
Verizon Communications (NYSE: VZ ) , for instance, was up 0.4%, good enough for the second-best performance of the day. Look no further than Verizon's 4.5% annual dividend for a reason why. If the U.S. defaults on its debt, interest rates are likely to skyrocket, and Verizon's record $49 billion bond issuance last month will start to look like quite a timely tapping of the debt markets. Then again, if the U.S. defaults, the financial nuclear wasteland Buffett warns of probably won't send Verizon's stock to the heavens.
While 90% of blue-chip companies fell Monday, the bottom two slots were reserved for credit card companies. American Express (NYSE: AXP ) shed 1.8% as rising fear on Wall Street drove shares in this consumer spending-reliant company lower. Frankly, it's a good bet that consumer confidence is slipping in the days and weeks leading up to the Oct. 17 debt-ceiling deadline. Less consumer confidence can mean consumers that, at least temporarily, are reluctant to open up their wallets until the future is more certain.
Visa (NYSE: V ) followed AmEx lower, shedding 2.2% on similar logic. It's easy to panic in situations like this, especially when every other news headline makes it seem like the doomsday is right around the corner. But the cool-headed, long-term way to approach today's market is to sit back and look for companies on sale. If you believe that Congress is dysfunctional to the point where lawmakers are dying to get voted out of office after they allow the U.S. to default, then you might want to start liquidating your holdings and buying canned goods with distant expiration dates. But something tells me politicians would rather keep their jobs, which means there are some stocks on sale right now.
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