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Benchmarks took a beating as the threat of an imminent government shutdown loomed over investors. However, on a month over month basis, major indexes posted gains. On the international front, manufacturing growth of China increased at a slower rate in September. Surprisingly, the unemployment rate in Japan increased slightly for the month of August. All the top ten S&P 500 industry groups ended in the red. Of the lot, consumer staples stocks suffered maximum losses.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article.

The Dow Jones Industrial Average (DJI) lost 0.8% to close the day at 15,129.67 The S&P 500 slipped 0.6% to finish yesterday’s trading session at 1,681.55. The tech-laden Nasdaq Composite Index decreased 0.3% to end at 3,771.48. The fear-gauge CBOE Volatility Index (VIX) jumped 7.4% to settle at 16.60. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 6.33 billion shares, marginally higher than 2013’s average of 6.3 billion shares. Declining stocks outnumbered the advancers. For 58% shares that declined, only 39% advanced. 

Despite benchmarks being battered owing to a probable government shutdown, major benchmarks ended the quarter with robust gains. The S&P 500 and the Nasdaq gained 4.7% and 10%, respectively over the quarter. Democrats and the Republicans failed to find common ground which will probably result in a Government shutdown. Republicans came up with a proposal of delaying Obamacare by a year. However, the proposal was rejected by the Democrats.

A government shutdown might not only hamper the US economy but will also affect the trust and confidence of the consumers. On the other hand, if lawmakers resolve the crisis, this might trigger a bull run in the market, which seems unlikely at this point. As a result of the shutdown nearly 1 million government employees will be forced to go on unpaid temporary leave. This shutdown, if at all happens, will take place after a period 17 years. According to SentimenTrader.com, past records show Wall Street has the capacity to absorb such developments. The last shutdown took place between December 15, 1995 and January 6, 1996. During this period the S&P 500 increased 0.1%.

Credit rating agency Standard & Poor’s said the US sovereign credit rating will stay unaffected only if the government shutdown is for a small period. In 2011, US economy has witnessed a loss of its AAA rating due to similar political tensions.

On the international front, manufacturing growth in China grew at a slower pace for the month of September. Small companies in China are facing the heat of a slowdown. Overcapacity and tepid demand has restricted the growth in manufacturing activity. The official Purchase managers’ Index (PMI) came in at 51.1 compared to previous month’s reading of 51.0. The sub-index for large companies increased to 52.1 from previous month’s reading of 51.8. However, the same index for small companies declined to 48.4 from previous month’s reading of 48.8.

Meanwhile, Japan witnessed a marginal increase in the unemployment rate for the month of August to 4.1% from previous month’s reading of 3.8%. Number of jobs available in the market declined 1% in August, but increased 4.3% on a year over year basis.
 
Consumer Staples stocks suffered maximum losses among the top ten S&P 500 industry groups. The Consumer Staples Select Sect. SPDR (XLP) declined 1.1%. Stocks such as The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), Philip Morris International Inc. (NYSE:PM), Wal-Mart Stores, Inc. (NYSE:WMT) and CVS Caremark Corporation (NYSE:CVS) lost 2.1%, 1.4%, 0.9%, 0.5% and 1.8%, respectively.

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