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Geopolitical Concerns Contribute To Weakness On Wall Street - U.S. Commentary


Following the lackluster performance in the previous session, stocks moved mostly lower over the course of the trading day on Wednesday. With the drop on the day, the major averages added to Tuesday's slim losses.

The major averages finished the day firmly in negative territory. The Dow fell 133.17 points or 0.5 percent to 25,673.46, the Nasdaq slumped 70.44 points or 0.9 percent to 7,505.92 and the S&P 500 slid 18.20 points or 0.7 percent to 2,771.45.

Geopolitical concerns weighed on Wall Street after a U.S. think tank said analysis of new satellite images of activity at a North Korean long-range rocket site suggests Pyongyang may be rapidly rebuilding the test facility that it pledged to dismantle.

The Center for Strategic and International Studies said the images were taken two days after the second summit between President Donald Trump and North Korean leader Kim Jong Un ended without an agreement late last month.

The two leaders cut short their discussions after Kim's request for a full withdrawal of sanctions in return for the communist country's willingness to abandon nuclear weapons was rejected.

Traders also reacted negatively to a report from payroll processor ADP showing U.S. private sector job growth slowed in February after an upwardly revised spike in January.

ADP said private sector employment increased by 183,000 jobs in February after soaring by an upwardly revised 300,000 jobs in January.

Economists had expected employment to climb by 189,000 jobs compared to the addition of 213,000 jobs originally reported for the previous month.

"The economy has throttled back and so too has job growth," said Mark Zandi, chief economist of Moody's Analytics. "Job gains are still strong, but they have likely seen their high watermark for this expansion."

A separate report from the Commerce Department showed the U.S. trade deficit widened by more than anticipated in December, as imports jumped and exports slumped.

The Commerce Department said the trade deficit widened to $59.8 billion in December from a revised $50.3 billion in November. Economists had expected the deficit to widen to $57.9 billion.

The substantial monthly increase drove the U.S. trade deficit to its highest level since reaching $60.2 billion in October of 2008.

The trade deficit for 2018 was also the biggest since 2008, widening to $621.0 billion from $552.3 billion in 2017 as Trump ramped up his trade war with China.

The release of the trade data comes amid lingering uncertainty about ongoing trade talks between the U.S. and China and the potential for a long-term deal.

Stocks remained firmly negative after the Federal Reserve's Beige Book said economic activity continued to expand in late January and February.

The Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts, said ten districts reported slight-to-moderate growth, although Philadelphia and St. Louis reported flat economic conditions.

The Fed noted the prolonged partial government shutdown led to slower economic activity in about half of the districts.

Sector News

Oil service stocks showed a substantial move to the downside on the day, dragging the Philadelphia Oil Service Index down by 3.2 percent.

The weakness among oil service stocks came amid a decrease by the price of crude oil, with crude for April delivery falling $0.34 to $56.22 a barrel following the release of a report showing a much bigger than expected weekly jump in crude oil inventories.

Significant weakness was also visible among biotechnology stocks, as reflected by the 2.9 percent slump by the NYSE Arca Biotechnology Index. The index continued to pull back after reaching a five-month intraday high on Monday.

Gold stocks also saw considerable weakness despite an increase by the price of the precious metal, with the NYSE Arca Gold Index tumbling by 2.7 percent.

Natural gas, semiconductor, and healthcare stocks also saw notable weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.6 percent, while China's Shanghai Composite Index surged up by 1.6 percent.

The major European markets also ended the day mixed. While the U.K.'s FTSE 100 Index rose by 0.2 percent, the French CAC 40 Index edged down by 0.2 percent and the German DAX Index dipped by 0.3 percent.

In the bond market, treasuries moved to the upside after ending the previous session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dropped 3 basis points at 2.692 percent.

Looking Ahead

Reports on weekly jobless claims and labor productivity and costs may attract some attention on Thursday, although trading activity is likely to be subdued ahead of the release of the closely watched monthly jobs report on Friday.

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