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Record Contraction In GDP Leads To Sell-Off On Wall Street

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Extending the see-saw performance seen over the past few sessions, stocks have moved sharply lower in morning trading on Thursday after ending the previous session mostly higher. The major averages have all moved to the downside, with the Dow showing a particularly steep drop.

Currently, the major averages are well off their lows of the session but still firmly in negative territory. The Dow is down 435.50 points or 1.6 percent at 26,104.07, the Nasdaq is down 81.60 points or 0.8 percent at 10,461.35 and the S&P 500 is down 41.34 points or 1.3 percent at 3,217.10.

The sell-off on Wall Street comes following the release of a report from the Commerce Department showing a record contraction in U.S. economic activity in the second quarter.

The report said real gross domestic product plummeted at an annual rate of 32.9 percent in the second quarter following a 5.0 percent slump in the first quarter.

While GDP showed the biggest quarterly drop on record, the plunge was not quite as steep as the 34.1 percent nosedive expected by economists.

Consumer spending led the decrease, cratering by 34.6 percent in the second quarter, as the coronavirus-induced lockdowns in late March and April forced many consumers to stay at home.

The steep drop in second quarter GDP should not have come as much of a surprise to traders, although seeing the actual data still seems to have generated some negative sentiment.

"We already know that activity rebounded strongly in May and June, setting the stage for a strong rise in GDP in the third quarter," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "Nevertheless, with the more recent resurgence in virus cases starting to weigh on the economy in July, a continued 'V-shaped' recovery is unlikely."

A separate report from the Labor Department showed initial jobless claims increased for the second straight week in the week ended July 25th, although claims rose by much less than expected.

The report said initial jobless claims edged up to 1.434 million, an increase of 12,000 from the previous week's revised level of 1,422,000.

Economists had expected jobless claims to rise to 1.450 million from the 1.416 million originally reported for the previous week.

Tech giants Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) and Facebook (FB) have also moved lower ahead of the release of their quarterly results after the close of today's trading.

Energy stocks have pulled back sharply after turning in some of the market's best performances in the previous session, with a steep drop by the price of crude oil weighing on the sector. Crude for September delivery is plunging $1.85 to $39.42 a barrel.

Reflecting the sell-off by energy stocks, the NYSE Arca Oil Index has plummeted by 5 percent and the Philadelphia Oil Service Index has tumbled by 3.4 percent.

Substantial weakness has also emerged among banking stocks, as reflected by the 3.6 percent nosedive by the KBW Bank Index. The index ended the previous session at its best closing level in a month.

Gold, steel, brokerage and chemical stocks are also seeing significant weakness, moving sharply lower along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Thursday. Japan's Nikkei 225 Index fell by 0.3 percent, while Australia's S&P/ASX 200 Index advanced by 0.7 percent.

Meanwhile, the major European markets have moved sharply lower on the day. While the German DAX Index has plunged by 4.3 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index are down by 3.2 percent and 3 percent, respectively.

In the bond market, treasuries have moved to the upside after ending the previous session nearly unchanged. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 3.4 basis points at 0.545 percent.

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