Ongoing Interest Rate Worries Contribute To Sell-Off On Wall Street

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After ending last Friday's trading narrowly mixed, stocks moved sharply lower over the course of the session on Monday. The major averages came under pressure in early trading and saw further downside as the day progressed.

The major averages climbed off their worst levels going into the close but remained firmly negative. The Dow slumped 482.78 points or 1.4 percent to 33,947.10, the Nasdaq dove 221.56 points or 1.9 percent to 11,239.94 and the S&P 500 tumbled 72.86 points or 1.8 percent to 3,998.84.

The sell-off on Wall Street partly reflected lingering uncertainty about the outlook for interest rates following last Friday's stronger-than-expected jobs data.

While the Federal Reserve is widely expected to slow the pace of interest rate hikes next week, continued labor market tightness and elevated inflation may still lead the central bank to raise rates higher than currently anticipated.

Adding to the worries about where rates will peak, the Institute for Supply Management released a report this morning showing U.S. service sector activity unexpectedly grew at an accelerated rate in the in the month of November.

The ISM said its services PMI climbed to 56.5 in November from 54.4 in October, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1.

A separate report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of October.

"The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession," said Edward Moya, senior market analyst at OANDA.

He added, "This next recession however won't be rescued by quick Fed easing or a fiscal response as that will fuel inflation risks."

Sector News

Banking stocks turned in some of the market's worst performances on the day, dragging the KBW Bank Index down by 4.4 percent to its lowest closing level in a month.

A sharp pullback by the price of crude oil also weighed on energy stocks, with crude for January delivery plunging $3.05 to $76.93 a barrel after reaching an early high of $82.72 a barrel.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plummeted by 4.0 percent and the NYSE Arca Oil Index dove by 3.0 percent.

Substantial weakness was also visible among transportation stocks, as reflected by the 3.3 percent slump by the Dow Jones Transportation Average.

Retail, computer hardware and brokerage stocks also saw considerable weakness on the day, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Monday. Japan's Nikkei 225 Index edged up by 0.2 percent, while China's Shanghai Composite Index shot up by 1.8 percent and Hong Kong's Hang Seng Index soared by 4.5 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index crept up by 0.2 percent, the German DAX Index fell by 0.6 percent and the French CAC 40 Index slid by 0.7 percent.

In the bond market, treasuries pulled back sharply after trending higher over the past few sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 9.3 basis points 3.599 percent.

Looking Ahead

The U.S. economic calendar is relatively quiet on Tuesday, although traders are still likely to keep an eye on the Commerce Department's report on the U.S. trade deficit in October.

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