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Stocks See Choppy Trading Following Last Friday's Sell-Off - U.S. Commentary

Stocks showed a lack of direction over the course of the trading day on Monday after ending the previous session substantially lower. The choppy trading came as traders expressed uncertainty about the outlook for the markets following last Friday's sell-off.

The major averages bounced back and forth across the unchanged line, eventually ending the day mixed. While the Dow edged down 17.11 points or 0.1 percent to 12,101.46, the Nasdaq rose 12.53 points or 0.5 percent to 2,760.01 and the S&P 500 crept up 0.13 points or less than a tenth of a percent to 1,278.17.

The lackluster performance on Wall Street came as many traders stayed on the sidelines following the steep losses seen last Friday, which came on much weaker than expected U.S. jobs data.

The report, which showed the weakest job growth in a year, added to concerns about whether the U.S. economic recovery will be able to hold up in light of the ongoing European debt crisis and slowing growth in China.

However, traders seemed reluctant to continue selling stocks amid indications that the recent pullback by the markets has been overdone.

The worries about the economic outlook still led most traders to refrain from going bargain hunting, leading to the choppy trading.

Meanwhile, the markets largely shrugged off a Commerce Department report showing an unexpected drop in new orders for U.S. manufactured goods.

The report showed that factory orders fell by 0.6 percent in April following a revised 2.1 percent drop in March. The decrease surprised economists, who had expected orders to edge up by 0.1 percent.

In corporate news, Salesforce.com (CRM) announced an agreement to acquire social media marketing platform Buddy Media for $689 million in cash and stock. The transaction is expected to be completed during salesforce.com's fiscal third quarter.

Bed Bath & Beyond (BBBY) also announced a deal to buy Linen Holdings for about $105 million in cash. The company said the acquisition will not have any effect on its first quarter results.

Meanwhile, shares of Charming Shoppes (CHRS) closed modestly higher even though the apparel retailer reported weaker than expected first quarter earnings and revenues.

Sector News

Despite the lackluster performance by the broader markets, substantial weakness was visible among airline stocks. Reflecting the weakness in the airline sector, the NYSE Arca Airline Index tumbled by 4.3 percent on the day.

US Airways (LCC) and Delta Air Lines (DAL) turned in two of the airline sector's worst performances, with both stocks plummeting by 11.6 percent.

Housing stocks also saw considerable weakness on the day, resulting in a 3.3 percent drop by the Philadelphia Housing Sector Index. With the loss, the index ended the session at its worst closing level in almost five months.

Banking and brokerage stocks also showed significant moves to the downside, with the KBW Bank Index and the NYSE Arca Broker/Dealer Index falling by 2.2 percent and 1.3 percent, respectively.

Meanwhile, gold stocks showed a notable turnaround over the course of the day. After falling as much as 1.6 percent, the NYSE Arca Gold Bugs Index closed up by 1.4 percent. While gold for August delivery close down $8.20 at $1,613.90, the precious metal moved back to the upside in electronic trading.

Telecom stocks also saw some strength during the session, driving the NYSE Arca Telecom Index up by 1 percent. Qualcomm (QCOM) helped to lead the sector higher.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region came under pressure on Monday following Friday's sell-off on Wall Street. Japan's Nikkei 225 Index tumbled by 1.7 percent, while Hong Kong's Hang Seng Index plummeted by 2 percent.

Meanwhile, the major European markets turned in a mixed performance on the day, with the French CAC 40 Index edging up by 0.1 percent, while the German DAX Index fell by 1.2 percent. The U.K. markets were closed for a public holiday.

In the bond market, treasuries gave back some ground after moving sharply higher in recent sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 6 basis points to 1.527 percent.

Looking Ahead

While the economic calendar remains relatively quiet on Tuesday, the Institute for Supply Management's report on service sector activity is expected to attract some attention.

The index of activity in the service sector is expected to come in unchanged at 53.5 in May, with a reading above 50 indicating growth.

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