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Stocks Showing Substantial Move To The Downside - U.S. Commentary


After coming under pressure early in the session, stocks have seen some further downside over the course of the trading day on Wednesday. The major averages have moved sharply lower, with the tech-heavy Nasdaq hitting a three-month intraday low.

Currently, the major averages are just off their worst levels of the day. The Dow is down 374.84 points or 1.4 percent at 26,055.73, the Nasdaq is down 163.83 points or 2.1 percent at 7,574.18 and the S&P 500 is down 42.77 points or 1.5 percent at 2,837.57.

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

Treasury yields initially moved higher on the day following the release of the Labor Department's report on producer inflation in September but have given back some ground since then.

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 have 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 is tumbling $1.59 to $73.37 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index has plunged by 3.4 percent, while the NYSE Arca Oil Index and the NYSE Arca Natural Gas Index are slumping by 2.3 percent and 2.2 percent, respectively.

Substantial weakness also remains visible among semiconductor stocks, as reflected by the 2.9 percent dive by the Philadelphia Semiconductor Index. The index has fallen to its lowest intraday level in five months.

Transportation, steel, networking and retail stocks have also moved significantly lower, reflecting broad based weakness on Wall Street.

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 have climbed off their worst levels of the session but remain in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 1.4 basis points at 3.222 percent.

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