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Profit Taking Leads To Sharp Pullback On Wall Street - U.S. Commentary


Stocks moved sharply lower over the course of the trading day on Monday, giving back some ground after moving notably higher in recent weeks. The losses on the day offset last Friday's standout gains, which came amid a positive reaction to the monthly jobs report.

The major averages saw continued weakness in the final hour of trading, ending the session near their worst levels of the day. The Dow slid 129.71 points or 0.9 percent to 13,880.08, the Nasdaq plunged 47.93 points or 1.5 percent to 3,131.17, and the S&P 500 tumbled 17.46 points or 1.2 percent to 1,495.71.

The pullback by stocks came as traders cashed in on the recent strength in the markets, which lifted the Dow and the S&P 500 to five-year closing highs.

The Dow ended Friday's trading above 14,000 for the first time since October of 2007, leading some analysts to suggest that the markets have become overbought.

Uncertainty about the political situation in Europe also weighed on stocks after opposition leaders called on Spanish Prime Minister Mariano Rajoy to resign amid allegations of corruption.

On the U.S. economic front, the Commerce Department released a report showing a notable increase in factory orders in December, although the pace of growth still fell short of economist estimates.

The report showed that factory orders surged up by 1.8 percent in December following a revised 0.3 percent decrease in November. Economists had expected orders to jump by 2.4 percent compared to the marginal increase originally reported for the previous month.

Selling pressure may also have been generated by signs of another budget showdown on Capitol Hill, with Senate Majority Leader Harry Reid, D-Nev., saying that any deal to avoid looming across-the-board spending cuts must include increased revenues.

While President Barack Obama has also called for increased revenues, Republicans have argued that they are done raising revenues after the fiscal cliff deal boosted tax rates on families making more than $450,000 a year.

Among individual stocks, shares of Gannett (GCI) moved to the downside even though the newspaper company reported better than expected fourth quarter results. Gannett fell by 6.7 percent to its lowest closing price in a month.

Food distribution giant Sysco (SYY) also came under pressure after reporting fourth quarter earnings that came in below analyst estimates. Shares of Sysco closed down by 2.7 percent.

On the other hand, shares of Acme Packet (APKT) moved sharply higher after the networking company agreed to be acquired by Oracle (ORCL) for $2.1 billion. Acme Packet surged up by 23.7 percent to an eleven-month closing high.

Sector News

Steel stocks turned in some of the market's worst performances on the day, resulting in a 2 percent drop by the NYSE Arca Steel Index. A.M. Castle (CAS), ArcelorMittal (MT), and Mechel (MTL) posted steep losses.

Considerable weakness also emerged among software stocks, as reflected by the 1.9 percent loss posted by the Dow Jones Software Index. The loss by the index came after it ended the previous session at its best closing level in over four months.

Oracle helped to lead the software sector lower, with the business software giant falling by 3 percent following news of its deal to acquire Acme Packet.

Healthcare provider stocks also moved sharply lower on the day, dragging the Morgan Stanley Healthcare Provider Index down by 1.6 percent. With the loss, the index gave back some ground after reaching a record closing high last Friday.

Electronic storage, semiconductor, and oil stocks also came under pressure, moving to the downside along with most of the major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in yet another mixed performance on Monday. Japan's Nikkei 225 Index advanced by 0.6 percent, while Hong Kong's Hang Seng Index edged down by 0.2 percent.

Meanwhile, the major European markets all moved sharply lower on the day. While the U.K.'s FTSE 100 Index fell by 1.6 percent, the German DAX Index and the French CAC 40 Index tumbled by 2.5 percent and 3 percent, respectively.

In the bond market, treasuries moved notably higher over the course of the session, bouncing off their recent lows. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.7 basis points to 1.973 percent.

Looking Ahead

Trading on Tuesday may be impacted by the Institute for Supply Management's report on service sector activity in the month of January.

The index of activity in the service sector is expected to dip to 55.1 in January from 56.1 in December, although a reading above 50 would indicate continued growth.

On the earnings front, Yum! Brands (YUM), Gilead Sciences (GILD), and Anadarko Petroleum (APC) are among the companies releasing their quarterly results after the close of today's trading.

Additionally, Kellogg (K), Archer Daniels Midland (ADM), and NYSE Euronext (NYX) are among the companies due to report their results before the start of trading on Tuesday.

by RTTNews Staff Writer

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