Tomahawk, WI 10/17/2013 (BasicsMedia) – There is a lot of uncertainty regarding SPDR S&P 500 ETF Trust (NYSEARCA:SPY). If you have been a keen follower of this ETF, you will have noticed that the prices keep fluctuating on an hourly basis. The constant shift in prices is because of the not so good news coming out of Washington. The government is yet to settle on some of the issues that resulted in its shutdown. How long can this go on without creating huge problems for SPY and other indexes as well? It could have been worse, but is there hope that the situation will change quickly enough?

SPY’s Performance Depends on the Government

The news from Washington does not offer much hope. Republicans and Democrats are yet to agree on anything and this is bad for the financial sector, of which SPY is a very important part. When the government recently released its forecast for the economy, in which it said that good performance was based on withdrawal of our troops from foreign soils, and peace for this and all subsequent generations, this brought a lot of excitement across all sectors. We failed to account for the fact that the government would perhaps emerge as its own worst threat.

The government shutdown indicates that it has emerged from all these worse off than anyone else. It is quite unfortunate that SPY and other ETFs as well as Indexes have bore the brunt of government inadequacies and indecisiveness. The global economy is yet to recover fully from the effects of the financial crisis of 2008/2009. The fact that the debt-ceiling deadline is almost here with us, during which we expect the government to default on its debts, is not good news for SPY. This ETF and others will suffer the most if the government defaults as it is expected.

ETFs’ Gains in Q3 of 2013 Could be Eroded

ETFs have generally enjoyed strong flows in the third quarter of 2013. I think the performance would have been much better without the different situations that have emerged in the last month or two. The $53 billion new flows garnered by stocks in the third quarter of 2013 are about to disappear into thin air due to government’s shortcomings. The more the government allows the dispute between Republicans and Democrats to go on unresolved, the more difficult it gets for these ETFs to post better results. SPY might end the year badly if there is no improvement.

The U.S equity funds were responsible for $22 billion of the $53 billion garnered by ETFs in the third quarter of 2013. International stock ETFs were responsible for close to $21 billion of this amount. SPY is part of the U.S equity funds, but the amount it helped garner will not be achieved for the remainder of 2013, unless Washington shares good news in the next few days. The situation cannot go on as it is and investors expect SPY to perform remarkably well. The window of opportunity that is open for SPY and other local ETFs to perform better is quite short.

SPY may be facing an uncertain future, but it could all change in a moment depending on what the government does in the next few hours.

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