Dow books worst month since Oct. 2020, skids 550 points in final session of September

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MARKET SNAPSHOT

U.S. stocks close lower Thursday, despite last-minute moves from Congress to avert a partial government shutdown, as Wall Street wrapped up the last trading day of a tough September and third quarter.

Investors also were parsing testimony from Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen, who appeared before the House Financial Services Committee.

How did the indexes trade?

  • The Dow Jones Industrial Average declined 546.80 points, or 1.6%, lower to end at 33,843.92.
  • The S&P 500 index closed down 51.92 points or 1.2% lower at 4,307.54.
  • The Nasdaq Composite Index fell 63.86 or 0.4% to end at 14,448.58.

For the month, the Dow recorded a 4.3% decline, and the S&P 500 was down 4.8%, snapping a seven-month winning streak. The Nasdaq Composite was off 5.3%, its worst September in a decade. For the quarter, the Dow was down 1.9%, the S&P 500 was up 0.2% and the Nasdaq Composite was up 0.4%.

What drove the market?

Congress voted through a short-term spending bill to keep the U.S. federal government running through early December, acting with only hours remaining before a partial shutdown. Congress has yet to raise the federal debt ceiling though.

The House is still aiming to pass a roughly $1 trillion infrastructure bill already passed by the Senate, but which may be in doubt as Democratic factions are threatening to block the bill unless moderate members sign on to supporting a separate, broader bill focused on climate change, education, and healthcare.

Investors were also digesting fresh comments from Fed Chairman Jerome Powell, on inflation remaining high for the time being due to supply bottlenecks as the economy recovers from the pandemic, as he testified to a House panel on COVID relief, along with Treasury Secretary Janet Yellen.

The Treasury Secretary at Thursday’s hearing reiterated that a failure to raise the debt limit would have catastrophic implications for markets and the U.S. economy.

Several other government officials spoke Thursday, including Atlanta Fed President Raphael Bostic, who said it’s time to start phasing out emergency pandemic aid because the U.S. economy has strengthened enough.

On the data front, the number of people who applied for U.S. unemployment benefits in late September rose to a two-month high, but much of the increase took place in California. New jobless claims paid traditionally by the states rose by 11,000 to 362,000 in the seven days ended Sept. 25, the government said Thursday.

Economists polled by The Wall Street Journal had estimated new claims would total a seasonally adjusted 330,000.

Putting September’s turbulence in perspective was the performance of the CBOE Volatility Index which finished almost 40% higher for the month, according to FactSet.

But some market experts were more sanguine about how investors are digesting this early fall harvest of macro concerns.

“If there was actual worry about the debt ceiling, why would the dollar be rocketing?” said Michael Batnick, director of research at Ritholtz Wealth Management. “We’re still up big year-to-date, even if some big names are getting cut in half recently. People are looking for a story to explain why people are selling.”

S&P 500 Energy sector was the only sector to finish up for the month, according to Dow Jones data, the first time that has happened since June 2008.

With stocks only about 5% off all-time highs, Batnick said it isn’t “a market that looks too scared of the debt ceiling,” but said the coronavirus’ Delta variant “seems to be having an impact here.”

An updated reading of second-quarter growth did show that the U.S. economy grew at a 6.7% annual pace, as the U.S. got a big jolt in the spring from government stimulus payments and coronavirus vaccines allowed businesses to reopen. The rise in consumer spending was slightly faster at 12% and exports were revised to show a 7.6% increase instead of 6.6%.

Separately, a measure of business conditions in the Chicago region slipped in September to the lowest level in seven months, a trade group said Thursday. The Chicago Business Barometer, also known as the Chicago PMI, slowed to 64.7 in September from 66.8 in the prior month. The index has been moderating from a record high of 75.2 in May.

Which companies were in focus?

  • Virgin Galactic Holding Inc. shares finished up 12.2%, after the space-tourism company announced the end of a Federal Aviation Administration probe into its test flight with founder Richard Branson on board.
  • CarMax Inc. shares fell 12.6% after the car retailer reported a 4% drop in second-quarter net income to $1.72 a share, which fell short of Wall Street expectations.
  • Boeing dropped 2.4%, even as Bernstein analysts upgraded the company and Spirit Aerosystems Holdings Inc. SPR to outperform on Wednesday and said they expect international traffic and aircraft demand to start to improve as COVID-19 vaccines begin to be administered in most major markets.
  • Goldman Sachs was down by 1.8%, with the financial services company weighing on the Dow industrials, along with a 2.6% decline in home-improvement retailer Home Depot Inc.
  • Bed Bath & Beyond plummeted 22.2% after the retailer reported fiscal second-quarter profit and sales that missed expectations and gave guidance below Street consensus.
  • Facebook shares closed essentially flat after the social media giant faced its long-awaited grilling on Capitol Hill with elected officials teeing off on executives for failing to protect kids on its platform, one day after its former security chief tweeted that “Young teens shouldn’t be on social media.”

How did other assets trade?

  • The 10-year Treasury note  was yielding 1.528% or 1.2 basis points below its Wednesday level.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was flat, holding at 94.27, the highest level in about a year.
  • Oil futures closed higher, with the U.S. benchmark up 0.3% to settle at $75.03 a barrel, while international benchmark Brent declined 0.2% to end at $78.52.
  • In European equities, the Stoxx Europe 600 index closed down 0.2% and the FTSE 100 index pulled back 0.3%. In Asia, the Nikkei 225 index slipped 0.3%, the Hong Kong Hang Seng Index slipped 0.3% and China’s CSI 300 index rose 0.6%.
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