Stocks showed a notable downturn over the course of the trading day on Wednesday after failing to sustain an early upward move. The pullback came as worries about the political situation in Greece once again overshadowed a batch of upbeat U.S. economic data.
The major averages all ended the day in negative territory, near their worst levels of the day. The Dow slipped 33.45 points or 0.3 percent to 12,598.55, the Nasdaq fell 19.72 points or 0.7 percent to 2,874.04 and the S&P 500 dropped 5.86 points or 0.4 percent to 1,324.80.
The losses extended a recent downward move by the major averages, with the Dow hitting a nearly four-month closing low, while the Nasdaq and the S&P 500 set new three-month lows.
While stocks saw early strength on the heels of the upbeat data, buying interest remained subdued as traders kept a close eye on developments in Greece, which is headed for a new round of elections after lawmakers failed to form a coalition government.
The subsequent downturn by the markets was partly due to a report from Reuters indicating that the European Central Bank has stopped monetary policy operations with some Greek banks.
A separate report from Bloomberg citing two euro-area officials said that the ECB has no immediate plans to increase stimulus, adding to the selling pressure.
Stocks saw continued weakness following the release of the minutes of the Federal Reserve's April meeting, which showed that members of the Federal Open Market Committee remain divided on the prospects for a third round of quantitative easing.
The minutes said "several" members are in favor of additional asset purchases if the economic recovery falters, up from language in the previous months indicating "a few" potential advocates for QE3.
The early strength on Wall Street was partly due to some better than expected U.S. economic data, including a report from the Federal Reserve showing a much bigger than expected increase in industrial production in April.
The Fed said industrial production increased by 1.1 percent in April, far exceeding economist estimates for an increase of about 0.5 percent.
Additionally, the Commerce Department released a report showing that U.S. housing starts came in above economist estimates in April, although the report also showed a sharp drop in building permits.
The report showed that housing starts rose 2.6 percent to an annual rate of 717,000 in April from the revised March estimate of 699,000. Economists had expected housing starts to increase to 690,000 from the 654,000 originally reported for the previous month.
At the same time, the Commerce Department said that building permits fell 7.0 percent to an annual rate of 715,000 in April from the revised March rate of 769,000. Building permits are seen as an indicator of future housing demand.
Most of the major sectors moved to the downside over the course of the trading day, reflecting the weakness that emerged in the broader markets.
Electronic storage stocks showed a significant downward move, dragging the NYSE Arca Disk Drive Index down by 2.9 percent to a nearly four-month closing low. Hutchinson Technology (HTCH) and SanDisk (SNDK) turned in two of the sector's worst performances.
Considerable weakness also emerged among telecom stocks, as reflected by the 2.5 percent loss posted by the NYSE Arca Telecom Index. The index fell to a three-month closing low amid steep losses by Level 3 Communications (LVLT) and Qualcomm (QCOM).
Steel stocks also came under pressure amid concerns about demand, resulting in a 2.3 percent drop by the NYSE Arca Steel Index. Brokerage, housing, and semiconductor stocks also posted steep losses.
In overseas trading, stock markets across the Asia-Pacific region saw significant weakness during trading on Wednesday. Japan's Nikkei 225 Index fell by 1.1 percent, while Hong Kong's Hang Seng Index plummeted by 3.2 percent.
Meanwhile, the major European markets turned mixed over the course of the trading session. While the French CAC 40 Index rose 0.3 percent, the U.K.'s FTSE 100 Index fell by 0.6 percent and the German DAX Index dropped by 0.3 percent.
In the bond market, treasuries turned higher on the day after seeing early weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 1.2 basis points to 1.765 percent after reaching an early high of 1.819 percent.
While developments overseas are likely to remain in focus on Thursday, trading could also be impacted by U.S. reports on weekly jobless claims, leading economic indicators, and Philadelphia-area manufacturing activity.
Traders are also likely to keep an eye on quarterly results from retail giant Wal-Mart (WMT), which is scheduled to release its first quarter results before the start of trading.
by RTT Staff Writer
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