Prospect of a Government Shutdown Weigh on Investor Sentiment

High oil prices added to worries about the central banks' ability to control inflation, leading to a decline in bond prices, while in other major developments, the growing possibility of a US government shutdown dampened investor confidence. [EasyDNNnews:PaidContentStart]

As cricket fever grips India, several undefeated teams have yet to face any significant challenges. Nevertheless, many loyal fans have already witnessed their teams' disappointing performances, putting their allegiance to the test. However, true enthusiasts understand that the game is never truly over, as there's always the potential for a dramatic comeback till the last over or the fourth quarter. Similarly, investors are now hoping for a comeback after the stock market's lacklustre performance in the recently concluded third quarter. 

The S&P 500 Index endured its fourth consecutive weekly decline in the first week of October, seemingly influenced by the upward pressure on interest rates, and a possible US Government shutdown, which negatively impacted investor confidence. Among the index components, utilities suffered the most significant setbacks, while energy stocks outperformed the market. 

Source: Bloomberg. Historical performance of the S&P 500 Index for the month of September. 

September proved to be a challenging month, with the S&P 500 plummeting by nearly 5 per cent. The rise in interest rates and concerns about the Federal Reserve's tightening policy further exacerbated weakness in growth and Small-Cap investments, with both the Nasdaq and Russell 2000 indices shedding nearly 6 per cent for the month. This marked the first quarterly loss in a year, with the S&P 500 declining by a total of 3 per cent in the third quarter. 

In local currency terms, the STOXX Europe 600 Index concluded 0.67 per cent lower amid worries about prolonged elevated interest rates and a sluggish Chinese economy. In the past fortnight, France's CAC 40 Index declined by 0.69 per cent, Germany's DAX fell by 1.10 per cent, and Italy's FTSE MIB dropped by 1.16 per cent. The UK's FTSE 100 Index also lost ground, declining by 0.99 per cent. 

Across Europe, government bond yields experienced a broad increase as investors focused on the prevailing narrative of higher interest rates. Germany's benchmark 10-year government bond yield climbed to nearly 3 per cent, a level not seen in over a decade, before retracing slightly. Revised figures for gross domestic product (GDP) revealed that the UK's economy grew more rapidly than initially estimated in the first three months of the year, with first-quarter growth now pegged at 0.3 per cent, compared to the previous estimate of 0.1 per cent. The second-quarter GDP estimate remained unchanged. 

In Japan, stock markets faced declines in the past fortnight, with the Nikkei down 1.7 per cent and the broader TOPIX Index slipping 2.2 per cent. Concerns regarding the possibility of prolonged higher US interest rates and soaring oil prices weighed on investor sentiment. However, investors welcomed the Japanese government's announcement of a new economic stimulus plan. 

Meanwhile, Chinese stocks experienced a drop in a shortened trading week in mid-October, as the absence of positive economic news dampened investor confidence. Both the blue-chip CSI 300 Index and the Shanghai Composite Index recorded losses. Mainland Chinese markets were closed in the first week of October, marking the beginning of a 10-day holiday period for the Mid-Autumn Festival and National Day. In Hong Kong, the benchmark Hang Seng Index declined by 1.37 per cent for the week.

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