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Stocks Seeing Modest Weakness In Mid-Day Trading - U.S. Commentary


After recovering from early selling over the course of the morning, stocks have moved back to the downside in recent trading on Friday. The pullback reflects lingering concerns about the impact of automatic government spending cuts.

The major averages have slid back into negative territory but remain well off their early lows. The Dow is down 20.63 points or 0.2 percent at 14,033.86, the Nasdaq is down 7.81 points or 0.3 percent at 3,152.38 and the S&P 500 is down 3.08 points or 0.2 percent at 1,511.60.

The modest weakness on Wall Street comes as approximately $85 billion in automatic cuts to both defense and domestic spending are due to go into effect today.

President Barack Obama held a meeting with Congressional leaders from both parties this morning but recently made a statement indicating that the cuts would not be averted.

The automatic spending cuts were implemented as part of the Budget Control Act of 2011 in order to push lawmakers to compromise on a broader budget agreement.

Members of both political parties have warned about the economic impact of the cuts, but familiar disagreements over taxes and entitlement reforms have prevented lawmakers from reaching an agreement to avoid them.

Earlier in the session, an upbeat report on U.S. manufacturing activity helped to offset some of the concerns about the spending cuts.

The Institute for Supply Management said its index of activity in the manufacturing sector rose to 54.2 in February from 53.1 in January, with a reading above 50 indicating growth in the sector. With the increase, the index reached its highest level since June of 2011.

A separate report from Thomson Reuters and the University of Michigan showed that consumer sentiment improved by even more than initially estimated in the month of February.

The report said the final reading on the consumer sentiment index for February came in at 77.6 compared to the mid-month reading of 76.3. Economists had expected the index to be downwardly revised to 76.0.

On the other hand, the Commerce Department released a report before the start of trading showing a sharper than expected pullback in personal income in the month of January.

The Commerce Department said personal income tumbled by 3.6 percent in January after surging up by 2.6 percent in December. Economists had been expecting income to pull back by about 2.1 percent.

At the same time, the report said personal spending edged up by 0.2 percent in January after inching up by 0.1 percent in December. The increase in spending matched economists' expectations.

Sector News

While many of the major sectors are showing only modest moves, considerable weakness is visible among steel stocks. Reflecting the weakness in the steel sector, the NYSE Arca Steel Index is down by 1.8 percent after hitting its worst intraday level in over two months.

Rio Tinto (RIO) and Steel Dynamics (STLD) are turning in two of the steel sector's worst performances, falling by 3.5 percent and 3.3 percent, respectively.

Oil service stocks are also seeing significant weakness on the day, moving lower along with the price of crude oil. With crude for April delivery sliding $1.58 to $90.47 a barrel, the Philadelphia Oil Service Index is down by 1.4 percent.

Gold, networking, and natural gas stocks are also moving to the downside, while airline stocks are turning in a strong performance. After reaching a two-year intraday high, the NYSE Arca Airline Index has given back some ground but remains up by 1.5 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. While Japan's Nikkei 225 Index rose by 0.4 percent, Hong Kong's Hang Seng Index ended the day down by 0.6 percent.

The major European markets also turned mixed over the course of the trading day. The U.K.'s FTSE 100 Index rose by 0.3 percent, while the German DAX Index and the French CAC 40 Index fell by 0.4 percent and 0.6 percent, respectively.

In the bond market, treasuries have pulled back off their best levels of the day but continue to see moderate strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.1 basis points at 1.857 percent.

by RTTNews Staff Writer

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