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U.S. Stocks Close Firmly Negative After Failed Recovery Attempt

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After coming under pressure early in the session, stocks staged a recovery attempt in afternoon trading on Wednesday but still ended the day firmly in negative territory. The major averages all moved to the downside following the mixed performance seen on Tuesday.

The major averages pulled back well off their recovery highs going into the close. The Dow fell 171.69 points or 0.5 percent to 33,98.32, the Nasdaq slumped 164.43 points or 1.3 percent to 12,938.12 and the S&P 500 slid 31.16 points or 0.7 percent at 4,274.04.

The failed recovery attempt came after the Federal Reserve released the minutes of its latest monetary policy meeting, which some traders seemed to interpret as pointing to a slowdown in the pace of interest rate hikes.

The Fed minutes reaffirmed the central bank's plans to continue raising interest rates in an effort to return inflation to its 2 percent objective.

The minutes did not provide specific guidance regarding the pace of future rate hikes, noting that the extent of future policy tightening would depend on the implications of incoming data for the economic outlook and risks to the outlook.

The Fed did reveal that meeting participants believed it would be necessary to move to a "restrictive stance of policy" due to inflation remaining well above the Fed's objective.

At the same time, the Fed said participants judged that it would eventually become appropriate to slow the pace interest rate hikes in order to assess the impacts of higher rates on economic activity and inflation.

The minutes showed some participants also expressed concerns the Fed could tighten the stance of policy by more than necessary to restore price stability.

"While that suggests the Fed is eyeing up a smaller 50bp move in September, and will be cautious about raising rates too far above neutral, we doubt officials will commit themselves either way when there is still another employment and inflation report due out before that meeting," said Michael Pearce, Senior U.S. Economist at Capital Economics.

The early pullback on Wall Street partly reflected profit taking, as some traders cashed in on the recent strength in the markets amid lingering concerns about the economy, inflation and interest rates.

While the Nasdaq edged lower on Tuesday, the Dow and the S&P 500 reached their best closing levels in almost four months.

A notable drop by shares of Target (TGT) also weighed on Wall Street, with the discount retailer slumping by 2.7 percent on the day.

The pullback by Target came after the company reported second quarter earnings that fell well short of analyst estimates, as it cut prices in an effort to reduce excess inventory.

Traders were also reacting to a Commerce Department report showing U.S. retail sales came in flat in July amid pullbacks in gas station and auto sales.

The Commerce Department said retail sales were virtually unchanged in July after climbing by a downwardly revised 0.8 percent in June.

Economists had expected retail sales to inch up by 0.1 percent compared to the 1.0 percent jump originally reported for the previous month.

Excluding gas station and auto sales, however, retail sales rose by 0.7 percent in July, matching the increase seen in the previous month.

Sector News

Gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 3.5 percent.

The sell-off by gold stocks came amid a decrease by the price of the precious metal, with gold for December delivery falling $13 to $1,776.70 an ounce.

Considerable weakness was also visible among airline stocks, as reflected by the 2.7 percent nosedive by the NYSE Arca Airline Index. The index continued to give back ground after reaching a two-month closing high on Monday.

Semiconductor stocks also saw significant weakness on the day, resulting in a 2.5 percent slump by the Philadelphia Semiconductor Index.

Steel, tobacco and biotechnology stocks also showed notable moves to the downside on the day, while oil service bucked the downtrend amid a sharp increase by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index jumped by 1.2 percent, while China's Shanghai Composite Index rose by 0.5 percent.

Meanwhile, the major European markets moved to the downside on the day. While the German DAX Index tumbled by 2 percent, the French CAC 40 Index slumped by 1 percent and the U.K.'s FTSE 100 Index fell by 0.3 percent.

In the bond market, treasuries moved notably lower, extending the pullback seen in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 6.9 basis points to 2.893 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to a slew of U.S. economic data, including reports on weekly jobless claims, Philadelphia-area manufacturing activity and existing home sales.

On the earnings front, Cisco Systems (CSCO) is among the companies releasing their quarterly results after the close of today's trading.

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