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Major Averages Close Mixed After Seeing Early Weakness - U.S. Commentary


Stocks once again recovered from an early move to the downside on Wednesday but showed a lack of direction over the remainder of the session.

The major averages spent the afternoon lingering near the unchanged line before closing mixed. While the Nasdaq inched up 5.21 points or 0.1 percent to 7,554.51, the Dow fell 72.82 points or 0.3 percent to 25,985.16 and the S&P 500 edged down 1.52 points or 0.1 percent to 2,792.38.

The early weakness on Wall Street came as comments from U.S. Trade Representative Robert Lighthizer partly offset recent optimism about the U.S.-China trade talks.

Lighthizer, who is described as "hawkish" on trade, told members of the House Ways and Means Committee that China needs to go beyond pledging to buy more U.S. goods to reach to a long-term trade agreement.

"We can compete with anyone in the world, but we must have rule, enforced rules, that make sure market outcomes and not state capitalism and technology theft determine winners," Lighthizer said.

The reaction to Lighthizer's remarks reflected the lingering uncertainty about a potential U.S.-China trade deal even after President Donald Trump decided to postpone an increase in tariffs on Chinese imports.

Selling pressure waned as the day progressed, however, as traders kept an eye on Trump's second summit with North Korean leader Kim Jong Un, looking for more concrete signs of progress toward the denuclearization of the Korean peninsula.

"Kim Jong Un and I will try very hard to work something out on Denuclearization & then making North Korea an Economic Powerhouse," Trump said on Twitter this morning. "I believe that China, Russia, Japan & South Korea will be very helpful!"

On the U.S. economic front, the National Association of Realtors released a report showing pending home sales rebounded by much more than anticipated in the month of January.

NAR said its pending home sales index spiked by 4.6 percent to 103.2 in January after tumbling by 2.3 percent to a downwardly revised 98.7 in December. Economists had expected pending home sales to rise by 0.4 percent.

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.

Meanwhile, a government shutdown-delayed report released by the Commerce Department showed new orders for manufactured goods rose by much less than anticipated in the month of December.

The Commerce Department said factory orders inched up by 0.1 percent in December after falling by a revised 0.5 percent in November. Economists had expected orders to climb by 0.5 percent.

Sector News

Most of the major sectors ended the day showing only modest moves, contributing to the lackluster performance by the broader markets.

Gold stocks showed a significant move to the downside, however, with the NYSE Arca Gold Bugs Index plunging by 1.9 percent.

The weakness among gold stocks came amid a decrease by the price of the precious metal, as gold for April delivery fell $7.30 to $1,321.20 an ounce.

Considerable weakness was also visible among semiconductor stocks, as reflected by the 1.2 percent drop by the Philadelphia Semiconductor Index.

On the other hand, biotechnology stocks moved sharply higher over the course of the session, driving the NYSE Arca Biotechnology Index up by 2.4 percent. The index jumped to its best closing level in over four months.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Wednesday. Japan's Nikkei 225 Index climbed by 0.5 percent, while China's Shanghai Composite Index rose by 0.4 percent.

Meanwhile, the major European markets moved to the downside on the day. While the French CAC 40 Index fell by 0.3 percent, the German DAX Index and the U.K.'s FTSE 100 Index dropped by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries remained firmly negative after coming under pressure early in the session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, advanced by 5.7 basis points to 2.693 percent.

Looking Ahead

News out of the Trump-Kim summit may impact trading on Thursday along with reports on weekly jobless claims, fourth quarter GDP, and Chicago-area business activity.

On the earnings front, Fitbit (FIT), Hostess Brands (TWNK), HP Inc. (HPQ), L Brands (LB), and Square (SQ) are among the companies releasing their quarterly results after the close of today's trading.

Anheuser-Busch InBev (BUD), J.C. Penney (JCP), and SeaWorld (SEAS) are also among the companies due to report their results before the start of trading on Thursday.

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