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Stocks Finish Lackluster Session Modestly Lower - U.S. Commentary

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Stocks turned in a relatively lackluster performance during trading on Wednesday before ending the session modestly lower. With the drop on the day, the major averages pulled back off their best closing levels in two months.

The major averages ended the day in negative territory but off their lows of the session. The Dow edged down 21.22 points or 0.1 percent to 25,390.30, the Nasdaq fell 26.80 points or 0.4 percent to 7,375.28 and the S&P 500 slipped 6.09 points or 0.2 percent to 2,731.61.

Profit taking may have contributed to the modest pullback on Wall Street, although selling pressure was subdued amid uncertainty about the near-term outlook for the markets.

Ambiguity about trade talks between the U.S. and China continued to hang over the markets, as President Donald Trump's State of the Union address last night lacked details on progress in the talks.

Treasury Secretary Steven Mnuchin called last week's meetings with Chinese Vice Premier Liu He "very productive" in an interview with CNBC's "Squawk Box," although traders may be looking for more concrete results.

In related news, the Commerce Department released a government shutdown-delayed report showing the U.S. trade deficit narrowed by much more than anticipated in the month of November.

The Commerce Department said the trade deficit narrowed to $49.3 billion in November from a revised $55.7 billion in October.

Economists had expected the deficit to narrow to $54.0 billion from the $55.5 billion originally reported for the previous month.

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the data suggests that trade made a small positive contribution to GDP growth in the fourth quarter

"That boost is unlikely to last for long, however. Along with the appreciation of the dollar last year, the slowdown in global demand will continue to weigh on exports for the foreseeable future," Hunter said. "As a result, we expect trade to be a small drag on economic growth for most of this year."

Sector News

Natural gas stocks moved significantly lower over the course of the trading session, dragging the NYSE Arca Natural Gas Index down by 1.9 percent.

The weakness in the sector came even though the price of natural gas for March delivery ended the day unchanged at $2.662 per million BTUs.

Considerable weakness also emerged among housing stocks, as reflected by the 1.3 percent drop by the Philadelphia Housing Sector Index.

Telecom and gold stocks also moved notably lower, while substantial strength remained visible among semiconductor stocks.

Reflecting the strength in the semiconductor sector, the Philadelphia Semiconductor Index soared 2.6 percent to a four-month closing high.

Shares of Skyworks Solutions (SWKS) moved sharply higher after the chipmaker reported weaker than expected fiscal first quarter results but announced a $2 billion stock repurchase program.

Microchip Technology (MCHP) also posted a standout gain after reporting fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

Other Markets

In overseas trading, stock markets across the Asia-Pacific moved to the upside on Wednesday, although most markets were closed for holidays. Japan's Nikkei 225 Index inched up by 0.1 percent, while Australia's S&P/ASX 200 Index rose by 0.3 percent.

Meanwhile, the major European markets moved modestly lower on the day. While the German DAX Index fell by 0.4 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index both edged down by 0.1 percent.

In the bond market, treasuries pulled back near the unchanged after initially moving to the upside As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 2.702 percent.

Looking Ahead

Earnings news is likely to attract attention on Thursday, with Chipotle Mexican Grill (CMG), GoPro (GPRO), Match Group (MTCH), MetLife (MET), and Zynga (ZNGA) among the companies releasing their quarterly results after the close of today's trading.

Cardinal Health (CAH), Dunkin' Brands (DNKN), GrubHub (GRUB), Kellogg (K), T-Mobile (TMUS) and Twitter (TWTR) are also among the companies due to report their results before the start of trading on Thursday.

Trading on Thursday may also be impacted by reaction to the Labor Department's report on initial jobless claims in the week ended February 2nd.

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