After The Close - The final trading day of September went emphatically to the bears, who were emboldened by continued fiscal and political worries both here and abroad. The major U.S. equity indexes, reacting to the lack of any headway in the budget talks on Capitol Hill, were off sharply at the start of the trading day and carried those losses through to the closing bell, with selling intensifying in the final hour after the Senate rejected the House’s latest budgetary proposal. All told, the Dow Jones Industrial Average fell 129 points, while the tech-heavy NASDAQ and the broader S&P 500 Index were each off ten points.

As noted, there is escalating fears on Wall Street that a failure to reach an agreement on a new budget deal by tonight’s deadline will result in a partial U.S. government shutdown. Such a scenario could pose a threat to the economic progress that has been made thus far in 2013. It should be noted that the S&P 500 Volatility Index (or VIX), also known as the fear gauge, jumped again today, as investors grow weary of the fiscal impasse and political bickering on Capitol Hill. As we stand now, the Democratic-led Senate has rejected the conditions that the Republican-led House of Representatives attached to a temporary spending bill this weekend. More precisely, the Senate voted to remove a one-year delay in President Barack Obama's health care law from the bill that would keep the government open for business. It also stripped a provision that would have eliminated the tax on medical devices. With only hours remaining before a midnight deadline, Democrats and a few Republicans are pressing for the House to approve a straightforward spending bill with no conditions—such an outcome is bleaker with every passing minute.

The political news from overseas also was not encouraging. Specifically, Italy’s former Prime Minister Silvio Berlusconi raised concerns after he forced five ministers from his party to withdraw their support for Prime Minister Enrico Letta’s coalition government. This was seen as an attempt by Mr. Berlusconi to bring down the government and force new elections seven months after the last vote. The growing political uncertainty raises the possibility that Italy’s current government could collapse, a scenario that would also compromise the country’s efforts to reduce its deficit and heavy debt load. This would likely have long-ranging fiscal consequences for the struggling euro zone. The yield on Italy's 10-year government bond spiked and the major European bourses fell sharply on this news and the aforementioned haggling on Capitol Hill.

Turning back to the United States, it was a sea of red ink for most of the 10 major sectors. The biggest laggards were the consumer staples, financial, industrial, and energy issues, with the latter hurt by falling crude oil prices. In particular, the economically sensitive sectors sold off sharply after reports surfaced that the Senate had rejected the House’s latest proposal. Conversely, there was some mild interest for a while in the defensive-oriented issues, but even the utilities—which finished the session flat—and healthcare issues succumbed to some selling in the final hour. Perhaps, some of the initial support was due to the aforementioned budget concerns.

Looking ahead to tomorrow, the equity indexes are likely to their cues from the happenings on Capitol Hill. Those developments, along with the latest report on manufacturing activity from the Institute for Supply Management—due at 10:00 A.M. (EDT)—are likely to drive trading. In addition to the manufacturing data, we will also receive reports this week on nonmanufacturing activity (Thursday) and employment (Friday). Importantly, investors should be aware that if a government shutdown was to take place, data on employment and unemployment would not be made available to the public at the end of this week. -William G. Ferguson

At the time of this article's writing, the author did not have positions in any of the companies mentioned. 


12:25 PM EDT - The U.S. stock market opened sharply lower this morning, but is now well off its session lows. At past noon in New York, the Dow Jones Industrial Average is off about 117 points; the broader S&P 500 Index is down nine points; and the NASDAQ is off 10 points. Market breadth is still decidedly negative, but improving, as declining stocks are ahead of advancers by about two to one on the NYSE. There are few, if any, notably pockets of strength in the market today, but there is considerable weakness in the energy sector, as shares of the exploration and development companies are trading lower. The consumer non-cyclical names are also slipping. Also, there is weakness in the industrials, as the defense-related issues are off sharply on budget concerns. Meanwhile, the healthcare issues, mainly the medical equipment and biotech companies, are displaying some relative strength.

Technically, with the exception of one advance, the S&P 500 Index has declined for about seven consecutive sessions. Today’s weakness puts the broad index back at its 50-day moving average at 1,680. Notably, the Dow Jones Industrials are now below this key technical measure, while the NASDAQ, which has been strong lately, is holding up quite a bit better. The VIX is up about 9%, to almost 17, today, suggesting that the mood may be turning more skittish.

There was just one economic report put out this morning, so traders are operating in an information vacuum, and that is seldom constructive. Specifically, some regions of the country are doing a bit better. Specifically, the Chicago PMI came in at 55.7 in September, which was up from the 53.0 reading logged in August, and ahead of the consensus view. Tomorrow brings a few reports, including monthly construction spending figures, as well as auto and truck sales. Meanwhile, the real news is playing out in Washington, as Congress, unable to agree on a budget, seems to be headed for a possible government shutdown at midnight.

Finally, a few individual stocks are moving today. Shares of Active Network (ACTV) are soaring, as that company has agreed to be acquired. In real estate, Brookfield Office Properties (BPO) stock is also up on acquisition news. - Adam Rosner

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.


10:00 AM EST - It is all about the federal budget and attempts by the two sides in a fractious Congress to reach an accord that is even minimally acceptable to both sides by the midnight deadline tonight that is driving the U.S. stock market thus far this morning.

And, not unexpectedly, that issue is driving equities lower to this point in the session, and is doing so in a big way. Thus, after about the first half hour of the new trading day, the last one this month and for the quarter, the Dow Jones Industrial Average is off by 145 points; the Standard and Poor's 500 Index is in the red to the tune of 13 points; and the tech-heavy NASDAQ is pushing lower by 31 points.

Worse, losing stocks are topping winners on the Big Board to the tune of some six to one, while the ratio is similar on the NASDAQ. The retreat stateside follows lower results in Asia overnight and in Europe so far this morning. It is not a pretty picture.

But as we opined earlier this morning, it is possible that the potential government shutdown that looms ahead tonight is a just a dress rehearsal for the much more serious debt-ceiling fight that has an October 17th deadline. Should that attempt to forge a last-minute deal falter, the United States would default on its debt. That, unlike the possible government shutdown has never occurred before.   - Harvey S. Katz

At the time of this article's writing, the author does not have positions in any of the companies mentioned.


Stocks to Watch from The Survey – Investors’ attention is largely focused on Washington, as the nation waits to see if lawmakers can reach an agreement to avoid a government shutdown at midnight tonight. However, there is some corporate news to keep an eye on, as well. On the earnings front, shares of Cal-Maine Foods (CALM), the largest producer and distributor of shell eggs in the United States, are indicating a lower opening in a decidedly weak premarket, after the company reported mixed August-period results. After the market closes today, nut and snack maker Diamond Foods (DMND) and payroll-accounting services provider Paychex (PAYX) are scheduled to release quarterly financials. – Matthew E. Spencer

 At the time of this article's writing, the author does not have positions in any of the companies mentioned.


Before The Bell - The stock market gave some ground on Friday, with the 30-stock Dow Jones Industrial Average ending a generally lower week with an additional 70-point loss. And its gets worse from there, as the equity futures are pointing sharply lower thus far this morning. So far, for example, the Dow futures are off by well over 100 points; the Standard and Poor's 500 Index futures have shed 16 points; and the NASDAQ futures are in the red to the tune of 31 points. As such, a markedly lower market opening would seem ahead in about a half hour from now.

Behind all of this negativity is the looming fear that the Government will shut down at midnight tonight due to an inability by the two political parties in Washington to reach a deal on a new budget. For their part, the Republicans are solely in favor of a compromise that would postpone the provisions of the Affordable Care Act for a year. For their part, the Democrats will not agree to any such postponement. So that is where we are now, and neither side seems, at this hour, to be willing to budge nor do they even seem willing to talk as the rhetoric hardens by the day.

If the government does shut down, some essential functions, most notably the military, will not be compromised, but some other functions of government, normally deemed essential, will be shuttered for the duration. It should be noted that we have had such shutdowns before, most notably in 1995, and the world did not come to an end. Will things be repeated this time, or will there be a last minute accord? That is, of course, up in the air. It should be noted, however, that notwithstanding the market's pullback last week, the selling has been orderly and there appears to be no panic in the markets this morning, either.

Of course, this is not the only thing on investors' minds as we close out one month and get ready to start another. The bigger issue is the looming deadline, on October 17th, to reach agreement on a debt-ceiling increase. Should an accord not be reached on that much more contentious and critical issue, the nation would default on its obligations. That is unprecedented. Looked at in such a perspective, the current fight is a mere dress rehearsal to a decidedly more ominous potential development. Meanwhile, it also should be noted, the coming month has seen some of the most memorable single-day stock market setbacks in history, including eye catching plunges in 1929, 1987, and 2008, although the month, on average, has been one of the better 31-day periods of the year.

So that is where we stand now. Not surprisingly, with the clock ticking down to midnight and no deal in sight as yet, the markets are falling around the globe this morning, pulling back in Asia overnight and now being notably lower in Europe this morning, where the London FTSE 100, the Frankfurt DAX, and the Paris CAC-40 are all down about one percent.

As to other news, this week will get a trio of very important reports, starting tomorrow with the Institute for Supply Management's monthly survey on manufacturing activity. Then, Thursday will bring the companion report on non-manufacturing activity. Finally, the week will conclude with the government's scheduled report on non-farm payrolls and the unemployment rate on Friday. An increase of 180,000 jobs is the consensus forecast at this time along with a flat 7.3% jobless rate. Of course, should a government shutdown ensue, and continue through Friday, there is every chance that this potentially market moving report will be delayed. It clearly is not a pretty picture. – Harvey S. Katz

At the time of this article's writing, the author did not have positions in any of the companies mentioned.