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Stocks End Sharply Lower as Curtain Comes Down on Brutal September

Stocks finish sharply lower Thursday as retail-supply-chain pressures signal squeezed profit margins heading into third-quarter earnings season.

Stocks finished sharply lower Thursday, closing off a brutal September, as investors continue to navigate a series of risks linked to energy markets, China growth and U.S. fiscal policy.

The Dow Jones Industrial Average finished down 546 points, or 1.59%, to 33,843 while the S&P 500 was off 1.19%. The Nasdaq was up 0.44%.

For the month, the Dow was down 4.3%, S&P was off 4.8%, and the Nasdaq slid 5.3%. 

The Dow and the Nasdaq suffered their worst months of the year, while the S&P saw its worst month since March 2020.

Congress took a big step toward avoiding a partial federal shutdown on Thursday when the Senate and then the House passed a bill to keep the government funded through Dec. 3, the Associated Press reported.

In the retail sector, Kohl's  (KSS) - Get Kohl's Corporation (KSS) Report tumbled after Bank of America issued a rare double downgrade, while Bed, Bath & Beyond  (BBBY) - Get Bed Bath & Beyond Inc. Report sank after slashing its full-year profit forecast due to "unprecedented supply chain challenges."

China saw a surprise slowdown in manufacturing activity this month, linked to rolling power cuts across the industrial northeast. The report underscored the myriad challenges facing the world's second largest economy heading into the final months of the year.

"Worries about China, the pandemic, the debt ceiling and tax legislation are weighing on investors right now," said Tom Mantione, managing director at UBS Private Wealth Management. "[But] it is important to understand which issues may create structural change and which ones create short-term volatility that investors can take advantage of."

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Anu Gaggar, global investment strategist for Commonwealth Financial Network, said she believes that "over the shorter term, headline risks remain elevated for Chinese equities."

"In the long term, continued economic growth in China may present attractive opportunities for value creation," she said. "To avoid potential landmines, however, active management is critical."

Jobless claims rose to 362,000 for the week ending Sept. 25, the Bureau of Labor Statistics said, although continued claims -- calculated a week in arrears -- edged lower, to 2.802 million. 

The government's final estimate for second-quarter GDP growth nudged higher, to 6.7%, thanks in part to solid consumer spending. 

"Though jobless claims ticked up yet again, weekly labor market data can be tricky to digest just because there is a lot of it and it’s certainly bounced around a lot throughout the pandemic," said Mike Loewengart, managing director of investment strategy at E-Trade Financial. 

Loewengart said that the end of federal pandemic unemployment benefits earlier in the month also likely drove an increase in filings for state benefits.

He also noted that the final GDP read was stronger than anticipated, "so while slower growth is a concern, it’s encouraging to see a bit of a bump on that front." 

"Bottom line, as we wrap up the third quarter and look ahead, investors will likely need to remain nimble as the economic recovery continues in a zig zag," Loewengart said.