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Lingering Rate Concerns Contribute To Sell-Off On Wall Street - U.S. Commentary

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Stocks saw substantial weakness during trading on Wednesday following the mixed performances seen in the two previous sessions. The tech-heavy Nasdaq showed a particularly steep drop, falling to its lowest closing level in over three months.

The major averages saw further downside going into the close, ending the day just off their lows of the session. The Dow plunged 831.83 points or 3.2 percent to 25,598.74, the Nasdaq plummeted 315.97 points or 4.1 percent to 7,422.05 and the S&P 500 tumbled 94.66 points or 3.3 percent to 2,785.68.

Technology stocks helped to lead the way lower on Wall Street, with Netflix (NFLX), Amazon (AMZN), Apple (AAPL) and Facebook (FB) all posting significant losses on the day.

The sell-off came amid lingering concerns about the outlook for interest rates following a recent increase in treasury yields.

Treasury yields moved higher on the day following the release of a Labor Department report showing a rebound in producer prices in the month of September.

The Labor Department said its producer price index for final demand increased by 0.2 percent in September after edging down by 0.1 percent in August. Economists had expected prices to rise by 0.2 percent.

Excluding decreases in prices for food and energy, core producer prices still rose by 0.2 percent in September after slipping by 0.1 percent in August. The uptick in core prices also matched economist estimates.

The report also said the annual rate of producer price growth slowed to 2.6 percent in September from 2.8 percent in August, although the annual rate of core producer price growth accelerated to 2.5 percent from 2.3 percent.

In comments to reporters on Tuesday, President Donald Trump said he does not like the pace at which the Federal Reserve is raising interest rates.

"I like to see low interest rates," Trump told reporters as he prepared to depart for a campaign rally in Iowa. "The Fed is doing what they think is necessary, but I don't like what they're doing."

"I will say this: We're normalizing money, and that's good," he added. "But I think we don't have to go as fast."

The comments from Trump come after the Fed raised interest rates by a quarter point to 2 to 2.25 percent last month, marking the third rate hike this year.

The Fed's projections for future rates also pointed to one more increase in rates this year and three rate hikes next year.

Arguing that inflation has been held in check, Trump said he does not want to see Fed policy lead to a slowdown in recent economic growth.

CME Group's FedWatch tool currently indicates an 81.4 percent chance the Fed will raise rates by another quarter point to 2.25 to 2.5 percent at its December meeting.

Sector News

Energy stocks moved sharply lower over the course of the session, with a steep drop by the price of crude oil weighing on the sector. Crude for November delivery tumbled $1.79 to $73.17 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 5.6 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index both slumped by 3.8 percent.

Substantial weakness was also visible among semiconductor stocks, as reflected by the 4.5 percent plunge by the Philadelphia Semiconductor Index. The index fell to its lowest closing level in over five months.

Transportation stocks also saw significant weakness, dragging the Dow Jones Transportation Average down by 4.1 percent to a nearly three-month closing low.

Networking, retail, computer hardware, and biotechnology stocks also moved notably lower, reflecting broad based weakness on Wall Street.

Meanwhile, gold stocks were among the few groups to buck the downtrend amid an increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw modest strength during trading on Wednesday. Japan's Nikkei 225 Index rose by 0.2 percent, while Hong Kong's Hang Seng Index crept up by 0.1 percent.

Meanwhile, the major European markets showed substantial moves to the downside on the day. While the U.K.'s FTSE 100 Index slumped by 1.3 percent, the French CAC 40 Index and the German DAX Index plummeted by 2.1 percent and 2.2 percent, respectively.

In the bond market, treasuries moved modestly lower, offsetting the rebound seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.7 basis points to 3.225 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to the Labor Department's reports on consumer price inflation and weekly jobless claims.

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