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Stocks Kick Off 2014 On Negative Note After Last Year's Rally - U.S. Commentary


Following the standout performance that was seen last year, stocks started the New Year on a significantly more negative note. The drop on Thursday marked the first time since 2008 that the markets moved to the downside on the first trading day of the year.

The major averages moved roughly sideways going into the close of trading, stuck firmly in the red. The Dow tumbled 135.31 points or 0.8 percent to 16,441.35, the Nasdaq fell 33.52 points or 0.8 percent to 4,143.07 and the S&P 500 slid 16.38 points or 0.9 percent to 1,831.98.

The weakness on Wall Street came as traders looked to cash in on the recent strength in the markets, with the Dow and the S&P 500 pulling back off record closing highs.

Concerns about the outlook for the global economy also weighed on the markets following the release of a report showing that growth in Chinese manufacturing activity slowed in December.

Final estimates released by HSBC and Markit Economics showed that their index of Chinese manufacturing activity fell to a 3-month low of 50.5 in December from 50.8 in November.

In U.S. economic news, the Institute for Supply Management released a report showing a slight slowdown in the pace of manufacturing growth in December.

The ISM said its purchasing managers index edged down to 57.0 in December from 57.3 in November, although a reading above 50 still indicates growth in the manufacturing sector. The modest decrease by the index matched economist estimates.

Meanwhile, the Labor Department released a report showing that initial jobless claims fell in line with economist estimates in the week ended December 28th.

The report said initial jobless claims dipped to 339,000, a decrease of 2,000 from the previous week's revised figure of 341,000. The figure from the previous week was upwardly revised from the 338,000 originally reported.

A separate report released by the Commerce Department showing that construction spending rose in line with economist estimates in the month of November.

Sector News

Tobacco stocks saw substantial weakness throughout the session, resulting in a 2.6 percent drop by the NYSE Arca Tobacco Index. With the loss, the index pulled back toward the five-month closing low set last month.

Universal (UVV) and Alliance One (AOI) turned in two of the tobacco sector's worst performances, falling by 3.6 percent and 3 percent, respectively.

With the disappointing Chinese data raising concerns about demand, steel stocks also saw considerable weakness on the day. The NYSE Arca Steel Index fell by 2.1 percent, pulling back off the eleven-month closing high set on Tuesday.

Significant weakness was also visible among computer hardware stocks, as reflected by the 1.8 percent loss posted by the NYSE Arca Computer Hardware Index. The loss by the index came after it ended the previous session at a record closing high.

Oil service, utilities, and transportation stocks also came under pressure, moving lower along with most of the other major sectors.

However, gold stocks bucked the downtrend by the broader markets, benefiting from a sharp increase by the price of the precious metal. With gold for February delivery jumping $22.90 to $1,225.20 an ounce, the NYSE Arca Gold Bugs Index surged up by 3.9 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Hong Kong's Hang Seng Index edged up by 0.1 percent, while China's Shanghai Composite Index dipped by 0.3 percent. The Japanese markets remained closed.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.'s FTSE 100 Index dropped by 0.5 percent, the German DAX Index and the French CAC 40 Index both tumbled by 1.6 percent.

In the bond market, treasuries regained some ground after trending lower in recent sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.1 basis points to 2.985 percent.

Looking Ahead

Trading on Friday could be impacted by remarks from a number of Federal Reserve officials, including Fed Chairman Ben Bernanke.

by RTTNews Staff Writer

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