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Stocks Close Lower Following Disappointing Batch Of Data - U.S. Commentary

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Stocks moved moderately lower during the trading session on Thursday following the release of a batch of largely disappointing U.S. economic data. Selling pressure was relatively subdued, however, limiting the downside for the major averages.

The major averages bounced well off their worst levels going into the close but still ended the day firmly negative. The Dow slid 103.81 points or 0.4 percent to 25,850.63, the Nasdaq fell 29.36 points or 0.4 percent to 7,459.71 and the S&P 500 dropped 9.82 points or 0.4 percent to 2,774.88.

The weakness on Wall Street came on the heels of a slew of disappointing economic data, including a report from the Philadelphia Federal Reserve unexpectedly showing a contraction in regional manufacturing activity for the first time since May of 2016.

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 also helped to limit the 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 demands 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 also helped to limit the downside.

Sector News

Oil service stocks moved sharply lower over the course of the session, dragging the Philadelphia Oil Service Index down by 3 percent.

The weakness among oil service stocks came amid a modest decrease by the price of crude oil, with crude for April delivery slipping $0.20 to $56.96 a barrel.

Significant weakness was also visible among biotechnology stocks, as reflected by the 2 percent slump by the NYSE Arca Biotechnology Index.

A steep drop by the price of gold also contributed to considerable weakness among gold stocks. With gold for April delivery tumbling $20.10 to $1,327.80 an ounce, the NYSE Arca Gold Bugs Index slid by 1.2 percent.

Natural gas and oil producer stocks also moved to the downside amid the drop by the price of crude oil, while notable strength 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 moved lower as optimism about the U.S.-China trade talks overshadowed the disappointing economic data. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 3.4 basis points to 2.688 percent.

Looking Ahead

The U.S. economic calendar is relatively quiet on Friday, although traders are likely to keep an eye on remarks by several Federal Reserve officials.

Fed Vice Chairman Richard Clarida, Fed Vice Chairman for Supervision Randal Quarles, San Francisco Fed President Mary Daly, New York Fed President John Williams, and St. Louis Fed President James Bullard are all due to participate in the U.S. Monetary Policy Forum in New York City.

On the earnings front, Baidu.com (BIDU), Con Edison (ED), First Solar (FSLR), Intuit (INTU), Kraft Heinz (KHC), and Roku (ROKU) are among the companies releasing their quarterly results after the close of today's trading.

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