Stocks Fall As Government Shutdown Nears

Stocks continued to decline on Monday, as investors’ concerns about a partial government shutdown reinforced risk aversion.

Stocks fell further into the red on Monday, as the inability of the federal government to pass a budget bill by today’s deadline placed the government on the verge of a partial shutdown. The major stock indices began their decline at 2:50 pm as it became increasingly obvious that there would be no last-minute deal to avoid a shutdown. The consumer, energy and financial sectors saw the steepest declines.

The Dow Jones Industrial Average (DIA) lost 128 points to finish Monday’s trading session at 15,129 for a 0.84 percent drop. The S&P 500 (SPY) fell 0.60 percent to close at 1,681.

The Nasdaq 100 (QQQ) declined 0.37 percent to finish at 3,218. The Russell 2000 (IWM) dipped 0.04 percent to end the day at 1,073.

In other major markets, oil (USO) fell 0.30 percent to close at $36.85.

On London’s ICE Futures Europe Exchange, November futures for Brent crude oil declined 36 cents (0.33 percent) to $107.34/bbl. (BNO).

December gold futures advanced $10.60 (0.79 percent) to $1,328.60 per ounce (GLD).

Transports had a late-day advance on Monday, although they eventually ran out of gas, with the Dow Jones Transportation Average (IYT) falling 0.27 percent.

Japan’s Ministry of Economy, Trade and Industry (METI) reported that the nation’s industrial production declined 0.7 percent in August after jumping 3.4 percent in July. Economists were expecting a less-significant, 0.4 percent decline. METI also disclosed that retail sales rose 1.1 percent in August on a year-over-year basis and that housing starts rose 8.8 percent year-over-year – falling short of economists’ expectations of a 12.7 percent advance. The Markit/JIMMA Manufacturing PMI rose to 52.5 in September from August’s 52.2, reaching its highest level since February of 2011.

The threat of a government shutdown in the United States weakened the dollar, causing unwanted yen strength. The yen rose to 97.80 per dollar during Monday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average sank 2.06 percent to 14,455 (EWJ).

In China, the HSBC Manufacturing PMI ticked up to 50.2 in September from August’s 50.1. The result indicated a decline from the flash reading of 51.2. The Shanghai Stock Exchange will be closed for the rest of the week, beginning on Tuesday, for National Day. The Shanghai Composite Index surged 0.68 percent to 2,174 (FXI). Hong Kong’s Hang Seng Index sank 1.50 percent to end the session at 22,589 (EWH).

In Europe, stocks fell as a result of the latest crisis caused by “The Thing That Wouldn’t Leave” (a/k/a Silvio Berlusconi). On Saturday, September 28, all five of Berlusconi’s sycophants from the People of Freedom Party resigned from Prime Minister Enrico Letta’s cabinet in attempt to force the nation’s President, Giorgio Napolitano, to dissolve the government and call for new elections before Berlusconi can be forced out of the nation’s Senate because of his conviction for tax fraud. Italy’s Senate is scheduled to vote on October 4, concerning whether the boot-shaped nation’s Upper House will give Berlusconi the boot. The ten-year Italian bond yield jumped from 4.42 percent to 4.59 percent. Share prices for Italy’s largest banks were hit particularly hard by the latest developments (EWI).

The Euro STOXX 50 Index finished Monday’s session with a 0.90 percent drop to 2,893 – remaining above its 50-day moving average of 2,821. Its Relative Strength Index is 56.97 (FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,679 despite finishing Monday s session with a 0.60 percent decline to 1,681. Its Relative Strength Index fell from 53.14 to 48.32. Although the MACD remains above the zero line, it has crossed below the signal line, suggesting the likelihood of a further retreat.

For Monday, all sectors were solidly in the red. The consumer staples sector took the hardest hit, falling 1.07 percent.

Consumer Discretionary (XLY): -0.38%

Technology: (XLK): -0.62%

Industrials (XLI): -0.59%

Materials: (XLB): -0.36%

Energy (XLE): -0.77%

Financials: (XLF): -0.70%

Utilities (XLU): -0.11%

Health Care: (XLV): -0.22%

Consumer Staples (XLP): -1.07%

Bottom line: Stocks declined on Monday as it became increasingly apparent that there would be a partial government shutdown as a result of the government’s failure to pass a budget bill by the September 30 deadline.

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