Stocks moved sharply lower over the course of the trading day on Thursday after showing a lack of direction early in the session. A batch of disappointing U.S. economic data inspired traders to cash in on the gains seen over the past two weeks.
The major averages saw further downside going into the close, ending the session just off their worst levels of the day. The Dow plunged 250.82 points or 2 percent to 12,573.57, the Nasdaq tumbled 71.36 points or 2.4 percent to 2,859.09 and the S&P 500 plunged 30.18 points or 2.2 percent to 1,325.51.
While some recent disappointing economic data generated optimism about further stimulus, today's weaker than expected reports were greeted negatively by traders now that the Federal Reserve meeting is in the rear-view mirror.
The sell-off on Wall Street was partly due to a report from the National Association of Realtors showing a bigger than expected drop in existing home sales in May.
NAR said existing home sales fell by 1.5 percent to a seasonally adjusted annual rate of 4.55 million in May from 4.62 million in April. Economists had expected a slightly more modest decrease to an annual rate of 4.57 million.
However, NAR chief economist Lawrence Yun said, "The slight pullback in monthly home sales is more likely due to supply constraints rather than softening demand."
A separate report from the Philadelphia Federal Reserve showed that Philadelphia-area manufacturing firms indicated weaker business conditions in June, with the index of regional manufacturing activity falling to a ten-month low.
The Philly Fed said its diffusion index of current activity fell to a negative 16.6 in June from a negative 5.8 in May, with a negative reading indicating a contraction in regional manufacturing activity.
Additionally, the Labor Department's report on initial jobless claims in the week ended June 16th showed that claims fell modestly for the week but still came in above analyst estimates.
The release of the disappointing data came on the heels of the Federal Reserve's announcement Wednesday of the extension of its "Operation Twist" program until the end of the year.
"Operation Twist" involves replacing short-term securities in the Fed's bond portfolio with longer-term securities in an effort to push already low long-term interest rates even lower.
Fed Chairman Ben Bernanke also noted that the central bank is prepared to take additional steps to prop up the sluggish economy.
Among individual stocks, shares of Bed Bath & Beyond (BBBY) tumbled by 17 percent after the home furnishings retailer reported better than expected first quarter earnings but provided disappointing guidance. With the loss, Bed Bath & Beyond fell to a three-month closing low.
Micron Technology (MU) and Red Hat (RHT) also posted steep losses on the day after reporting their quarterly results after the close of trading on Wednesday.
On the other hand, shares of Rite Aid (RAD) bucked the downtrend, with the drug store operator advancing by 6.8 percent after reporting a narrower than expected first quarter loss.
Sector News
Resource stocks helped to lead the markets lower, as commodities prices came under pressure amid concerns about the economic outlook.
Substantial weakness was visible among gold stocks, which moved sharply lower along with the price of the precious metal. With gold for August delivery tumbling $50.30 to $1,565.50 an ounce, the NYSE Arca Gold Bugs Index plummeted by 5.3 percent.
Oil service stocks also saw significant weakness on the day, resulting in a 5.4 percent drop by the Philadelphia Oil Service Index. The losses by oil service stocks came as crude for August delivery slid $3.25 to $78.20 a barrel.
Technology stocks also came under considerable selling pressure, contributing to the sharp drop by the tech-heavy Nasdaq. Electronic storage, semiconductor, and networking stocks turned in some of the tech sector's worst performances.
Most of the other major sectors also showed notable moves to the downside, reflecting broad based weakness on Wall Street. Brokerage, chemical, and housing stocks posted particularly steep losses.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Thursday, although Japan's Nikkei 225 Index bucked the downtrend and rose by 0.8 percent. Hong Kong's Hang Seng Index and China's Shanghai Composite Index fell by 1.3 percent and 1.4 percent, respectively.
The major European markets also moved to the downside over the course of the trading day. The U.K.'s FTSE 100 Index tumbled 1 percent, the German DAX Index slid 0.8 percent, and the French CAC 40 Index dropped 0.4 percent.
In the bond market, treasuries moved modestly higher on the heels of the disappointing U.S. economic data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.4 basis points to 1.618 percent.
Looking Ahead
Amid a lack of major U.S. economic data on Friday, traders are likely to keep a close eye on any developments overseas.
by RTT Staff Writer
For comments and feedback: editorial@rttnews.com
Market Analysis