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Bargain Hunting Helps Stocks Recover From Yesterday's Sell-Off - U.S. Commentary

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Stocks moved mostly higher over the course of the trading day on Tuesday, partly offsetting the sell-off that was seen in the previous session. The markets benefited from bargain hunting following recent weakness, although buying interest was somewhat subdued.

The major averages ended the day firmly in positive territory but well off their highs for the session. The Dow rose 72.44 points or 0.5 percent to 15,445.24, the Nasdaq climbed 34.56 points or 0.9 percent to 4,031.52 and the S&P 500 advanced 13.31 points or 0.8 percent to 1,755.20.

The strength on Wall Street was partly due to bargain hunting on the heels of the steep losses posted on Monday, which extended a recent downward trend for the markets.

With the sharp drop, the Dow and the S&P 500 fell to their lowest levels in over three months, while the Nasdaq set a two-month closing low.

The Dow was down by 7.3 percent compared to the record closing high set on the last day of 2013, closing in on the 10 percent decrease that defines a correction.

Some traders subsequently looked to pick up stocks at reduced levels, but buying interest remained somewhat subdued amid continued weakness in emerging markets.

On the economic front, the Commerce Department released a report showing a notable drop in new orders for U.S. manufactured goods in the month of December.

The report said factory orders fell by 1.5 percent in December following a revised 1.5 percent increase in November. Economists had expected orders to drop by about 1.8 percent.

However, excluding a sharp drop in orders for transportation equipment, factory orders actually rose by 0.2 percent in December.

Among individual stocks, shares of ATMI (ATMI) moved sharply higher after the semiconductor materials supplier agreed to be acquired by Entegris (ENTG) in a deal valued at approximately $1.15 billion.

Fast food giant Yum! Brands (YUM) also moved to the upside after reporting better than expected fourth quarter earnings. The company also reaffirmed its 2014 earnings growth guidance.

On the other hand, Microsoft (MSFT) closed modestly lower after the software giant said its board has appointed Satya Nadella as Chief Executive Officer, effective immediately. Nadella previously held the position of Executive Vice President of Microsoft's Cloud and Enterprise group.

Shares of Take-Two Interactive (TTWO) came under pressure after the video game company reported better than expected third quarter results but provided disappointing fourth quarter guidance.

Sector News

Natural gas stocks turned in some of the market's best performances on the day, driving the NYSE Arca Natural Gas Index up by 2.1 percent. Ultra Petroleum (UPL) and EOG Resources (EOG) posted standout gains.

The strength among natural gas stocks came amid a notable increase by the price of natural gas, with natural gas for March delivery jumping nearly 10 percent to $5.375 per million BTUs.

Significant strength was also visible among networking stocks, as reflected by the 1.8 percent gain posted by the NYSE Arca Networking Index. Anixter International (AXE) helped lead the sector higher, surging up by 8.3 percent after reporting better than expected fourth quarter results.

Bargain hunting also contributed to considerable strength among steel stocks. After ending the previous session at a nearly five-month closing low, the NYSE Arca Steel Index jumped 1.6 percent.

Brokerage, railroad, commercial real estate, and airline stocks also saw notable strength, moving higher along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw substantial weakness during trading on Tuesday. Japan's Nikkei 225 Index tumbled by 4.2 percent, while Hong Kong's Hang Seng Index slumped by 2.9 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While French CAC 40 Index edged up by 0.2 percent, the U.K.'s FTSE 100 Index dipped by 0.3 percent and the German DAX Index fell by 0.6 percent.

In the bond market, treasuries gave back some ground after moving sharply higher in recent sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.3 basis points to 2.624 percent.

Looking Ahead

Trading on Wednesday may be impacted by the release of a pair of economic reports, with traders likely to keep an eye on the reports on private sector employment and service sector activity.

On the earnings front, Merck (MRK) and Time Warner (TWX) are among the companies due to report their quarterly results before the start of trading on Wednesday.

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