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Stocks Close Firmly Negative Amid Interest Rate Worries - U.S. Commentary

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Stocks saw considerable weakness during the trading session on Thursday, extending the pullback seen in afternoon trading on Wednesday. With the drop on the day, the Dow gave back ground after ending yesterday's trading at a record closing high.

The major averages climbed well off their worst levels of the session but still finished the day firmly in the red. The Dow tumbled 200.91 points or 0.8 percent to 26,627.48, the Nasdaq plunged 145.57 points or 1.8 percent to 7,879.51 and the S&P 500 slumped 23.90 points or 0.8 percent to 2,901.61.

The notable weakness on Wall Street came as a recent jump by U.S. treasury yields has raised concerns about the outlook for interest rates.

With the ten-year yield reaching its highest levels in over seven years, traders seem worried the Federal Reserve may raise rates more aggressively than currently anticipated.

Adding to the concerns Fed Chairman Jerome Powell said in remarks at the Atlantic Festival in Washington, D.C. after the close of trading on Wednesday that interest rates are "a long way from neutral" even after recent increases.

"The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don't need those anymore. They're not appropriate anymore," Powell told Judy Woodruff of PBS.

"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral," he added. "We may go past neutral, but we're a long way from neutral at this point."

On the U.S. economic front, the Labor Department released a report showing a bigger than expected drop in initial jobless claims in the week ended September 29th.

The Labor Department said initial jobless claims fell to 207,000, a decrease of 8,000 from the previous week's revised level of 215,000.

Economists had expected jobless claims to edge down to 213,000 from the 214,000 originally reported for the previous week.

A separate report from the Commerce Department showed a bigger than expected rebound in factory orders in the month of August.

The Commerce Department said factory orders surged up by 2.3 percent in August after falling by a revised 0.5 percent in July, while economists had expected factory orders to jump by 2.1 percent

Sector News

Biotechnology stocks saw substantial weakness on the day, resulting in a 2.4 percent slump by the NYSE Arca Biotechnology Index. The index pulled back further off the record closing high set a week ago.

Celgene (CELG), Gilead Sciences (GILD), and Biogen (BIIB) turned in some of the biotech sector's worst performances.

Considerable weakness was also visible among tobacco stocks, which extended the pullback seen in the previous session. The NYSE Arca Tobacco Index plunged by 2 percent, largely offsetting the spike seen on Tuesday.

Semiconductor stocks also showed a significant move to the downside, dragging the Philadelphia Semiconductor Index down by 1.8 percent.

Retail, steel, housing, and computer hardware stocks also saw notable weakness on the day, while brokerage stocks bucked the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan's Nikkei 225 Index fell by 0.6 percent, while Hong Kong's Hang Seng Index plunged by 1.7 percent.

The major European markets also moved to the downside on the day. While the German DAX Index fell by 0.4 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index slumped by 1.2 percent and 1.5 percent, respectively.

In the bond market, treasuries moved lower, extending the sharp drop seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.6 basis points to 3.197 percent.

Looking Ahead

On Friday, trading is likely to be driven by reaction to the Labor Department's closely watched monthly employment report.

The report is expected to show employment climbed by about 185,000 jobs in September after jumping by 201,000 jobs in August. The unemployment rate is expected to dip to 3.8 percent from 3.9 percent.

The monthly jobs data is likely to overshadow a separate report on the U.S. trade deficit as well as remarks by Federal Reserve officials.

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