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Major Averages Close Modestly Lower After Volatile Session - U.S. Commentary


After coming under pressure early in the session, stocks rebounded over the course of the trading day on Thursday but pulled back going into the close. The major averages eventually ended the day modestly lower, partly offsetting the substantial gains posted in the previous session.

The Dow moved in a nearly 300-point range before edging down 27.59 points or 0.1 percent to 25,338.84. The Nasdaq slipped 18.51 points or 0.3 percent to 7,273.08 and the S&P 500 dipped 5.99 points or 0.2 percent to 2,737.80.

The modestly lower close on Wall Street came after the minutes of the Federal Reserve's monetary policy meeting held earlier this month seemed to reinforce expectations for another quarter-point increase in interest rates next month.

The minutes of the Federal Open Market Committee meeting said almost all participants agreed another increase in rates was "likely to be warranted fairly soon."

The Fed noted a near-term rate hike would be dependent on incoming information on the labor market and inflation coming in line with or stronger than current expectations.

CME Group's FedWatch tool currently indicates an 82.7 percent chance the Fed will raise rates to a range of 2.25 to 2.50 percent at the two-day meeting scheduled for December 18th and 19th.

However, the minutes noted a few participants continued to favor gradual increases in rates but expressed uncertainty about the timing of such increases.

A couple of participants also noted rates might currently be near a neutral level and warned further increases could unduly slow economic growth and put downward pressure on inflation and inflation expectations.

In remarks to the Economic Club of New York on Wednesday, Fed Chairman Jerome Powell described the current level of interest rates as "just below" neutral.

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy--that is, neither speeding up nor slowing down growth," Powell said.

The latest remarks seemed to conflict with comments Powell made early last month, when he described rates as a "long way from neutral."

The early weakness on Wall Street came following the release of some disappointing economic data, including a report from the National Association of Realtors unexpectedly showing a substantial decrease in pending home sales in the month of October.

NAR said its pending home sales index plunged by 2.6 percent to 102.1 in October after climbing by 0.7 percent to an upwardly revised 104.8 in September. With the steep drop, the index fell to its lowest level since mid-2014.

The sharp pullback surprised economists, who had expected pending home sales to rise by 0.5 percent, matching the increase originally reported for the previous month.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

The Labor Department also released a report showing initial jobless claims unexpectedly rose to a six-month high in the week ended November 24th.

The report said initial jobless claims climbed to 234,000, an increase of 10,000 from the previous week's unrevised level of 224,000. Economists had expected jobless claims to edge down to 220,000.

With another unexpected increase, jobless claims reached their highest level since hitting a matching figure in the week ended May 19th.

Meanwhile, a separate report from the Commerce Department showed personal income and spending both increased by more than anticipated in the month of October.

The Commerce Department said personal income climbed by 0.5 percent in October after edging up by 0.2 percent in September. Economists had expected income to rise by 0.4 percent.

Additionally, the report said personal spending advanced by 0.6 percent in October after rising by 0.2 percent in the previous month. Spending had also been expected to increase by 0.4 percent.

Sector News

Most of the major sectors showed only modest moves on the day, contributing to the lack of direction shown by the broader markets over the course of the session.

Computer hardware stocks saw considerable weakness, however, with the NYSE Arca Computer Hardware Index plunging by 2.4 percent.

Significant weakness was also visible among brokerage stocks, as reflected by the 1.5 percent slump by the NYSE Arca Broker/Dealer Index.

Gold stocks also moved notably lower despite a modest increase by the price of the precious metal, while some strength emerged among chemical stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Thursday, although Chinese stocks bucked the uptrend. Japan's Nikkei 225 Index rose by 0.4 percent, while Australia's S&P/ASX 200 Index climbed by 0.6 percent.

European stocks also moved to the upside on the day. The U.K.'s FTSE 100 Index and the French CAC 40 Index both advanced by 0.5 percent, but the German DAX Index bucked the uptrend and closed just below the unchanged line.

In the bond market, treasuries pulled back off their best levels still ended the session slightly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by nearly a basis point to 3.035 percent after hitting a two-month intraday low of 3.008 percent.

Looking Ahead

The economic calendar is relatively quiet on Friday, although traders are likely to keep an eye on a report on Chicago-area business activity.

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