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Modest Weakness Remains Visible On Wall Street - U.S. Commentary


After an early move to the downside, stocks continue to see modest weakness in mid-day trading on Thursday. The major averages remain in negative territory, although selling pressure has been relatively subdued.

Currently, the major averages are off their lows of the session but stuck in the red. The Dow is down 80.04 points or 0.3 percent at 25,874.40, the Nasdaq is down 17.53 points or 0.2 percent at 7,471.54 and the S&P 500 is down 7.20 points or 0.3 percent at 2,777.50.

The modest weakness on Wall Street comes following the release of a batch of disappointing U.S. economic data, including a report from the Philadelphia Federal Reserve unexpectedly showed a contraction in regional manufacturing activity in the month of February.

The Philly Fed said its index for current manufacturing activity in the region tumbled to a negative 4.1 in February from a positive 17.0 in January, with a negative reading indicating contraction. The index had been expected to slip to 14.0.

A separate report from the Commerce Department also showed a smaller than expected increase in durable goods orders in January.

The report said durable goods orders surged up by 1.2 percent in December after jumping by an upwardly revised 1.0 percent in November.

Economists had expected durable goods orders to soar by 1.5 percent compared to the 0.7 percent increase that had been reported for the previous month.

Excluding a jump in orders for transportation equipment, durable goods orders inched up by just 0.1 percent in December after slipping by 0.2 percent in November. Ex-transportation orders had been expected to rise by 0.3 percent.

The Commerce Department also said orders for non-defense capital goods excluding aircraft, a closely watched indicator of business spending, fell by 0.7 percent in December after tumbling by 1.0 percent in November.

Andrew Hunter, Senior U.S. Economist at Capital Economics said, "The December durables goods data suggest that equipment investment growth slowed further in the fourth quarter, and we expect it to remain weak for most of this year."

"Overall, the durable goods data provide further reason to think that economic growth will soon slow to below its 2% potential pace, which will keep the Fed on hold throughout this year," he added.

The National Association of Realtors also released a report showing existing home sales unexpectedly fell to their lowest level in over three years in January.

NAR said existing home sales tumbled by 1.2 percent to an annual rate of 4.94 million in January after plunging by 4.0 percent to a revised rate of 5.00 million in December.

The continued decrease surprised economists, who had expected existing home sales to climb by 1.0 percent to a rate of 5.04 million from the 4.99 million originally reported for the previous week.

With the third consecutive monthly decrease, existing home sales slumped to their lowest annual rate since November of 2015.

Meanwhile, the Labor Department released a report showing first-time claims for unemployment benefits fell more than expected in the week ended February 16th.

The report said initial jobless claims dropped to 216,000, a decrease of 23,000 from the previous week's unrevised level of 239,000. Economists had expected jobless claims to dip to 229,000.

Optimism about trade talks between the U.S. and China has also helped to limit selling pressure, with a report from Reuters saying the two sides have started to outline commitments in principle on the stickiest issues in their trade dispute.

While the U.S. and China remain far apart on demand for structural changes to China's economy, sources familiar with the negotiations told Reuters the broad outline of what could make up a deal is beginning to emerge from the talks.

A separate report from CNBC indicating Chinese authorities could be getting ready to implement more extensive stimulus measures in a bid to encourage economic growth is also helping to limit the downside by stocks.

Sector News

Oil service stocks have moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 2.2 percent.

The weakness among oil service stocks comes amid a decrease by the price of crude oil, with crude for April delivery falling $0.32 to $56.84 a barrel.

A steep drop by the price of gold is also contributing to considerable weakness among gold stocks. With gold for April delivery tumbling $14.40 to $1,333.50 an ounce, the NYSE Arca Gold Bugs Index is down by 1.4 percent.

Natural gas and biotechnology stocks have also moved to the downside on the day, while notable strength has emerged among software stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Thursday. Japan's Nikkei 225 Index ticked up by 0.2 percent, while China's Shanghai Composite Index dipped by 0.3 percent.

The major European markets also ended the day mixed. While the German DAX Index rose by 0.2 percent, the French CAC 40 Index was nearly flat and the U.K.'s FTSE 100 Index slumped by 0.9 percent.

In the bond market, treasuries have moved lower despite the disappointing economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 3.7 basis points at 2.691 percent.

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