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U.S. Stocks Climb Off Worst Levels But Still Close Sharply Lower

wallstreet aug29 15apr20

After falling sharply early in the session, stocks regained some ground over the course of the trading day on Wednesday but remained firmly negative. With the drop on the day, the major averages partly offset the strong gains posted in the previous session.

The major averages all posted notable losses after ending Tuesday's trading at their best closing levels in a month. The Dow plunged 445.41 points or 1.9 percent to 23,504.35, the Nasdaq tumbled 122.56 points or 1.4 percent to 8,393.18 and the S&P 500 plummeted 62.70 points or 2.2 percent to 2,783.36.

The sharp pullback on Wall Street came as the latest earnings and economic news reminded investors of the devastating economic impact of the coronavirus pandemic.

Before the start of trading, financial giants Bank of America (BAC), Goldman Sachs (GS) and Citigroup (C) all reported sharply lower first quarter earnings.

The steep drop in earnings comes as the major banks set aside billions of dollars to prepare for a flood of defaults on loans due to the coronavirus-induced economic shutdown.

Adding to the negative sentiment, the Commerce Department released a report showing a sharp decline in U.S. retail sales in the month of March.

The Commerce Department said retail sales plummeted by 8.7 percent in March after falling by a revised 0.4 percent in February.

Economists had expected retail sales to plunge by 8.0 percent compared to the 0.5 percent drop originally reported for the previous month.

Excluding a nosedive in sales by motor vehicle and parts dealers, retail sales still tumbled by 4.5 percent in March following a 0.4 percent decrease in February. Ex-auto sales were expected to slump by 4.8 percent.

A separate report from the New York Federal Reserve showed New York manufacturing activity contracted at the fastest rate on record in the month of April.

The New York Fed said its general business conditions index plummeted to a negative 78.2 in April from a negative 21.5 in March, with a negative reading indicating a contraction in regional manufacturing activity. The index was expected to slump to a negative 35.0.

With the much bigger than expected nosedive, the general business conditions index plunged to its lowest level in the history of the survey—by a wide margin.

Just before the start of trading, the Federal Reserve released a report showing the biggest monthly drop in U.S. industrial production in over seventy years in the month of March.

The report said industrial production plunged by 5.4 percent in March after rising by a downwardly revised 0.5 percent in February.

Economists had expected production to tumble by 4.0 percent compared to the 0.6 percent increase originally reported for the previous month.

The Fed said the bigger than expected nosedive in industrial production reflected the biggest monthly decrease since January of 1946.

Additionally, the National Association of Home Builders released a report showing a record monthly decline in homebuilder confidence in April.

The report said the NAHB/Wells Fargo Housing Market Index plummeted to 30 in April after slipping to 72 in March. Economists had expected the index to tumble to 55.

The steep drop reflected the largest single monthly change in the history of the index and marks the lowest builder confidence reading since June 2012.

Late in the trading day, the Fed's Beige Book noted U.S. economic activity has contracted sharply and abruptly across all regions as a result of the COVID-19 pandemic.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, noted the hardest hit industries included leisure and hospitality and retail due to social distancing measures and mandated closures.

Sector News

Energy stocks turned in some of the market's worst performances as the price of crude oil dropped below $20 a barrel, with crude for May delivery slipping $0.24 to $19.87 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 7 percent and the NYSE Arca Oil Index tumbled by 5.8 percent.

The disappointing earnings news also contributed to considerable weakness among banking stocks, as reflected by the 6.3 percent nosedive by the KBW Bank Index.

Housing stocks also moved sharply lower over the course of the session, dragging the Philadelphia Housing Sector Index down by 5.5 percent.

Most of the other major sectors also moved to the downside on the day, with significant weakness visible among steel, chemical and telecom stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.5 percent, while China's Shanghai Composite Index slid by 0.6 percent.

The major European markets also showed significant moves to the downside on the day. While the U.K.'s FTSE 100 Index plummeted by 3.3 percent, the French CAC 40 Index and the German DAX plunged by 3.8 percent and 3.9 percent, respectively.

In the bond market, treasuries moved sharply higher following the slew of disappointing economic data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slumped 11.4 basis points to 0.638 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to another batch of U.S. economic data, including the Labor Department's report on weekly jobless claims.

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