U.S. Stocks Waver at Start of New Quarter

By Caitlin Ostroff and Dawn Lim

U.S. stocks pared gains Thursday, following the S&P 500's best six-month performance since 2009.

The broad stock market index gained less than 0.1%. Despite a decline in September, the benchmark is up more than 35% over the past six months. The Dow Jones Industrial Average slipped 0.3%. The Nasdaq Composite increased 1%.

Investors are waiting to see if Congress will pass another aid package that would bolster U.S. economic growth ahead of next month's presidential election, though such hopes have largely receded in recent weeks.

"The big wild card in the U.S. is whether we get more fiscal spending or not," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham. "The political backdrop is just so toxic."

A renewed burst of optimism this week -- prompted by talks between Republican and Democratic leaders -- began to fade Wednesday after the House postponed a vote on a $2.2 trillion package. Democrats are trying to find common ground with the White House on a bipartisan agreement, though they remain far apart on key issues.

The lead-up to the presidential election -- and the prospect of a contested outcome -- is keeping a lid on the rally and creating turbulence in markets, traders said.

"It's a lot of maybe and maybe not," said Kathryn Kaminski, chief research strategist at AlphaSimplex Group. "We have a positive view on U.S. stocks, but are still skeptical."

Investors are also still assessing the course of the coronavirus. Infection rates in the U.S. have remained elevated for some months, and health experts have warned that the colder months may bring a new wave of cases.

Although investors don't expect to see a repeat of the spring's stringent lockdowns, fresh restrictions could threaten recovery in the labor market and weigh on consumer spending, which accounts for more than two-thirds of the U.S. economy.

About 837,000 Americans applied for new unemployment benefits through the week ended Sept. 26, down from 873,000 the week before, signaling an improving labor market though unemployment remains high. New figures from the Department of Commerce showed that U.S. consumers boosted spending by 1% in August from the month prior.

Activity in the U.S. manufacturing sector kept growing in September, albeit at a slightly slower speed than that of August, data from a survey compiled by the Institute for Supply Management showed Thursday.

U.S. consumer spending rose 1% in August while incomes fell, in part because of a decline in government aid for unemployed workers.

Some believe the central banks' stimulus measures will keep markets buoyant.

"If you look at the market, it's telling you that we're going to get a recovery next year. I'm convinced we're in a new bull market," said Patrick Spencer, managing director at U.S. investment firm Baird. "Even with the election, behind all that is central banks and liquidity."

The Nasdaq Composite's stronger performance than other major indexes show that technology has been a major recipient of what has ultimately an uneven rally, investors said.

Within the S&P 500, the energy sector was by far the weakest performer Thursday, falling 2.7%.

"There still has not been a dramatic amount of broad-based support, especially in energy and financials," said Jeremy Bryan, portfolio manager at Gradient Investments. "Those are the poster children of continued underperformance."

Financial stocks ticked up 0.3% in the S&P 500 Thursday, the sector has dropped 21% this year. Only the energy group, with a 51% decline, has fared worse.

In corporate news, shares of Boeing rose 1.2% after the plane maker got a tentative personal endorsement for fixes to its beleaguered 737 MAX from the head of the Federal Aviation Administration. Shares in PepsiCo edged up 1% after the drinks and snacks company beat earnings estimates.

In bond markets, the yield on the benchmark 10-year Treasury ticked up to 0.691%, from 0.677% Wednesday. In currency markets, investors' continued expectations of Fed stimulus, as well as heightened appetite for risk-taking outside the U.S., has contributed to the weakening of the dollar. The WSJ Dollar Index, which tracks the greenback against a basket of other major currencies, fell 0.1%.

Overseas, the pan-continental Stoxx Europe 600 rose 0.2%. In Asia, the Tokyo Stock Exchange halted all stock trading for Thursday due to a system problem and said it expects to resume normal trading Friday. Markets in China, Hong Kong and South Korea were closed for a holiday.

Write to Caitlin Ostroff at [e-mail] and Dawn Lim at [e-mail]

(END) Dow Jones Newswires

10-01-20 1426ET