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.
Another day has passed, and lawmakers were still unable to reach consensus to end the government shutdown and avoid a potential default on U.S. Treasury debt later this month. Investors haven't outright panicked yet, but market benchmarks clearly show that anxiety levels are rising. The S&P Volatility Index (^VIX -3.96%), also known as the Fear Index because of its role as a measure of investor willingness to pay premium prices for options to protect their investments, climbed above 20 for the first time since the Federal Reserve-taper scare in June. The Dow Jones Industrials (^DJI 0.52%) posted another triple-digit decline, falling 160 points and bringing its total decline since its Sept. 18 high to 900 points, or almost a 6% correction.
Among the Dow's worst performers was Visa (V 0.38%), which fell 2%. The new Dow component followed through on sizable losses from yesterday's session as well, as a report from the Federal Reserve found that credit card use has fallen for three straight months. Anything that jeopardizes consumers' willingness to spend threatens Visa's transaction-volume-based business model. If the stalemate lasts much longer, economists fear that it could have a devastating impact on the U.S. economy in general and on consumer sentiment in particular.
IBM (IBM 1.20%) also posted declines, losing 1.8% as rival Amazon.com won a court ruling concerning a $600 million contract to provide cloud-computing services to the CIA. IBM protested the initial award of the contract to Amazon's Web Services unit and was given another chance to bid, but the Court of Federal Claims found that IBM should not have another bidding opportunity. IBM plans to appeal, but the episode shows just how high the stakes are in cloud services right now.
Finally, outside the Dow, Tower Group (NASDAQ: TWGP) plunged more than 40% after the insurance company said it would need to add a much larger than expected $365 million to its loss reserves, prompting a downgrade of its debt to junk status. With the insurer writing property/casualty and workers' compensation insurance as well as providing reinsurance services, such a large loss reserve will likely require a long-term workout. Even with some past share-price drops over the past couple of months, Tower reminded just how risky the insurance industry can be when things go wrong.
