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U.S. Stocks Seeing Modest Weakness Following Yesterday's Rally

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Stocks are seeing modest weakness in morning trading on Wednesday, giving back ground following the rally seen in the previous session. Selling pressure has remained subdued, however, limiting the downside for the major averages.

The major averages have climbed off their lows of the session but currently remain in the red. The Dow is down 27.16 points or 0.1 percent at 26,997.64, the Nasdaq is down 15.46 points or 0.2 percent at 8,133.25 and the S&P 500 is down 2.35 points or 0.1 percent at 2,993.33.

Lingering uncertainty about a potential U.S.-China trade deal is weighing on the markets, as new reports raised questions about the "phase one" deal announced by President Donald Trump last week.

A Wall Street Journal report noted questions remain about how much U.S. agricultural products China intends to buy and the time frame for the purchases, while a Bloomberg report said China wants tariffs rolled back before it moves forward.

Negative sentiment was also generated in reaction to a Commerce Department report showing an unexpected decrease in U.S. retail sales in the month of September.

The Commerce Department said retail sales fell by 0.3 percent in September after climbing by an upwardly revised 0.6 percent in August.

The drop came as a surprise to economists, who had expected sales to rise by 0.3 percent compared to the 0.4 percent increase originally reported for the previous month.

Excluding a notable pullback in auto sales, retail sales still edged down by 0.1 percent in September after rising by a revised 0.2 percent in August.

Economists had expected ex-auto sales to rise by 0.2 percent compared to the unchanged reading originally reported for the previous month.

However, the weaker than expected data has also reinforced expectations for another interest rate cut by the Federal Reserve at its next monetary policy meeting later this month.

The early selling pressure has also been partly offset by a positive reaction to the latest batch of earnings news, with Bank of America (BAC) moving notably higher after reporting better than expected third quarter results.

Stocks have climbed off their worst levels following the release of a report from the National Association of Home Builders showing homebuilder confidence unexpectedly climbed to its highest level in well over a year in the month of October.

The report said the NAHB/Wells Fargo Housing Market Index jumped to 71 in October after inching up to 68 in September. Economists had expected the index to come in unchanged from the previous month.

With the unexpected increase, the housing market index rose for the fourth straight month and reached its highest level since hitting a matching reading in February of 2018.

Later in the day, the Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts released shortly before the central bank makes it decision on monetary policy.

Most of the major sectors are showing only modest moves on the day, although considerable weakness has emerged among software stocks.

Reflecting the weakness in the software sector, the Dow Jones U.S. Software Index has tumbled by 1.8 percent after ending the previous session at its best closing level in well over two months.

On the other hand, oil service stocks have shown a strong move to the upside, driving the Philadelphia Oil Service Index up by 1.1 percent.

The strength among oil service stocks comes amid a modest increase by the price of crude oil, with crude for November delivery inching up $0.06 to $52.87 a barrel.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index shot up by 1.2 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent.

Meanwhile, the major European markets are turning in a mixed performance on the day. While the German DAX Index has risen by 0.3 percent, the French CAC 40 Index is down by 0.1 percent and the U.K.'s FTSE 100 Index is down by 0.6 percent.

In the bond market, treasuries are seeing modest strength following the downturn seen over the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 1.2 basis points at 1.759 percent.

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