Stocks ended sharply lower as the partial government shutdown continued for a second week. Lack of progress in passing the emergency funding bill has raised investor concerns about the debt ceiling deadline. These concerns have pushed the Dow Jones to its lowest level in a month. Meanwhile, consumer credit increased in the month of August. This single encouraging report was unable to lift investor sentiments. Most of the sectors in the S&P 500 industry groups ended in the red led by consumer discretionary and material stocks.
For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street
The Dow Jones Industrial Average (DJI) declined 0.9% to close the day at 14,936.24. The S&P 500 fell 0.9% to finish yesterday’s trading session at 1,676.12. The tech-laden Nasdaq Composite Index dropped 1.0% to end at 3,770.38. The fear-gauge CBOE Volatility Index (VIX) surged 16.0% to settle at 19.41. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 4.54 billion shares, considerably lower than 2013’s average of 6.1 billion shares. Declining stocks outnumbered the advancers. For 76% shares that declined, only 21% advanced.
Benchmarks retreated from yesterday’s modest gains as the political confrontation over the ongoing budget issue continued. Investor apprehensions about the ongoing budget issue and the debt ceiling limit are increasing day by day. If lawmakers fail to reach a deal on the budget within the next few days, they might miss the debt ceiling deadline. The partial government shutdown has forced millions of workers out of work. These concerns have lifted the CBOE Volatility index to its highest level since June. The gauge has gained 48% in the last three weeks.
Neither Republicans nor Democrats are showing any signs of progress and both parties are blaming each other. Congress was "playing with fire" said Treasury Secretary Jack Lew on Sunday. He also said if a similar situation continues then the country could default in just over a week. Meanwhile, Republican House Speaker John Boehner said in the absence of spending cut conditions, he is failing to obtain the numbers required to increase the $16.7 trillion debt limit. He added that the country is on its way to a credit default.
On the home front, consumer credit numbers were released yesterday. According to the Federal Reserve data, consumer credit increased to $13.6 billion in August from the previous month’s figure of $10.4 billion. This was above the consensus estimate of $12.9 billion. Nonrevolving credit increased 8% in the month of August. However, revolving credit declined at annual rate of 1.2%. If the shutdown continues, two important economic reports, trade data and retail sales which are scheduled to report on Tuesday and Friday respectively will not be released. In the previous week, construction spending, factory orders and non-farm payrolls reports were not released.
Investors will also increasingly focus on the third quarter earnings season. Financial bellwether JPMorgan Chase & Co (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) are slated to report results on Friday. In the second quarter, financial sector had performed better than the other sectors.
The consumer discretionary sector was the worst performer among the S&P 500 industry groups. The Consumer Discretionary SPDR (XLY) lost 1.4%. Stocks such as Amazon.com, Inc. (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), The Home Depot, Inc. (NYSE:HD), The Walt Disney Company (NYSE:DIS) and McDonald's Corporation (NYSE:MCD) slipped 2.8%, 1.2%, 0.9%, 1.1% and 0.4%, respectively.
The materials sector also had a bad day and the Materials Select Sector SPDR (XLB) lost 1.2%. Stocks such as Monsanto Company (NYSE:MON), Air Products & Chemicals, Inc. (NYSE:APD), The Dow Chemical Company (NYSE:DOW), Sherwin-Williams Company (NYSE:SHW) and Mosaic Co (NYSE:MOS) declined 0.9%, 1.6%, 1.6%, 2.8% and 1.0%, respectively.