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Stocks Fall Sharply Amid Ongoing Interest Rate Uncertainty - U.S. Commentary

wallstreet 111814 30Apr15

Stocks moved sharply lower over the course of the trading day on Thursday, adding to the losses posted in the previous session. The sell-off extended a recent pullback by the markets, with the tech-heavy Nasdaq closing lower for the fourth straight day.

The major averages closed firmly in negative territory but off their worst levels of the day. The Dow tumbled 195.01 points or 1.1 percent to 17,840.52, the Nasdaq plummeted 82.22 points or 1.6 percent to 4,941.42 and the S&P 500 slid 21.34 points or 1 percent to 2,085.51.

The weakness on Wall Street was partly due to ongoing uncertainty about the outlook for interest rates even after the Federal Reserve's monetary policy announcement on Wednesday.

The Fed's statement failed to provide specific guidance regarding interest rates, although several analysts noted the central bank did not rule out a rate hike at the June meeting.

In the statement issued followed the March meeting, the Fed said an interest rate hike at the April meeting was unlikely, but the central bank did not make a similar declaration in yesterday's statement.

Traders may also have been cashing in on the strength seen in the markets over the past few weeks, which lifted the Nasdaq and the S&P 500 to record closing highs last Friday.

In light of the Fed's insistence that future monetary policy decisions will be data-dependent, traders are likely to keep a close eye on incoming economic data.

The Labor Department released a report before the start of trading showing that first-time claims for U.S. unemployment benefits pulled back to their lowest level in fifteen years in the week ended April 25th.

The report said initial jobless claims dropped to 262,000, a decrease of 34,000 from the previous week's revised level of 296,000. Economists had expected jobless claims to edge down to 288,000.

With the much bigger than expected decrease, jobless claims fell to their lowest level since hitting 259,000 in the week ended April 15, 2000.

The Commerce Department released a separate report showing a continued increase in U.S. personal spending in the month of March, although the report also said personal income was unexpectedly flat.

The report said personal spending rose by 0.4 percent in March following an upwardly revised 0.2 percent increase in February. Economists had expected spending to climb by 0.5 percent.

Meanwhile, the Commerce Department said personal income inched up by less than a tenth of a percent in March after increasing by 0.4 percent in February. Income had been expected to rise by 0.2 percent.

Sector News

While most of the major sectors came under pressure on the day, biotechnology stocks showed a substantial move to the downside. The NYSE Arca Biotechnology Index tumbled by 3 percent to its lowest closing level in well over two months.

Celgene (CELG) turned in one of the biotech sector's worst performances after reporting weaker than expected first quarter revenues. Nektar Therapeutics (NKTR) also posted a steep loss ahead of the release of its quarterly results after the close of trading.

Significant weakness was also visible among gold stocks, as reflected by the 2.9 percent loss posted by the NYSE Arca Gold Bugs Index. The index gave back ground after ending the previous session at a nearly two-month closing high.

The pullback by gold stocks came amid a steep drop by the price of the precious metal, with gold for June delivery plunging $27.60 to $1,182.40 an ounce.

Brokerage stocks also saw considerable weakness on the day, resulting in a 2.3 percent loss by the NYSE Arca Broker/Dealer Index. The drop by the index came after it ended the previous session at a seven-year closing high.

Networking, commercial real estate, health care and electronic storage also came under pressure, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan's Nikkei 225 Index plunged by 2.7 percent, while Hong Kong's Hang Seng Index dropped by 0.9 percent.

Meanwhile, the major European markets ended the day modestly higher. While the French CAC 40 Index inched up by 0.1 percent, the U.K.'s FTSE 100 Index and the German DAX Index both edged up by 0.2 percent.

In the bond market, treasuries regained ground after coming under pressure in early trading but still closed in the red. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, crept up by 1.1 basis points to 2.046 percent.

Looking Ahead

Trading on Friday may be impacted by another batch of U.S. economic data, with traders likely to keep an eye on reports on manufacturing activity, consumer sentiment, and construction spending.

Earnings news may also attract attention, with Expedia (EXPE), First Solar (FSLR), LinkedIn (LNKD), and Visa (V) among the companies releasing their quarterly results after the close of today's trading.

Chevron (CVX), Clorox (CLX), Moody's (MCO) and Newell Rubbermaid (NWL) are also due to report their results before the start of trading on Friday.

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