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Stocks Come Under Pressure Amid Falling Bond Yields - U.S. Commentary

wallstreet sept06 27mar19 lt

After initially showing a lack of direction, stocks have moved significantly lower over the course of the trading session on Wednesday. The major averages have pulled back firmly into negative territory after spending early trading bouncing back and forth across the unchanged line.

Currently, the major averages are just off their new lows of the session. The Dow is down 202.63 points or 0.8 percent at 25,455.10, the Nasdaq is down 99.83 points or 1.3 percent at 7,591.69 and the S&P 500 is down 27.63 points or 1 percent at 2,790.83.

The sell-off on Wall Street comes amid a notable drop by bond yields, which are extending the downward trend seen over the past few sessions.

Bond yields have moved to the downside amid concerns about the economic outlook, with an inversion of the yield curve leading to worries about a potential recession.

Traders are also digesting a report from the Commerce Department showing the U.S. trade deficit narrowed much more than expected in January due to a steep drop in the value of imports.

The Commerce Department said the trade deficit narrowed to $51.1 billion in January from a revised $59.9 billion in December. Economists had expected the deficit to shrink to $57.0 billion.

In the previous month, the trade deficit increased to its highest level since reaching $60.2 billion in October of 2008.

The narrower than expected deficit came as the value of imports tumbled by 2.6 percent to $258.5 billion, while the value of exports rose by 0.9 percent to $207.3 billion.

Michael Pearce, Senior U.S. Economist at Capital Economics, noted the steep drop in the value of imports is "hardly a positive sign for the economy."

"Nonetheless, with imports now likely to have been flat, or fallen slightly, in the first quarter overall, net trade is likely to be a positive for economic growth in the first quarter," Pearce said.

He added, "We now expect first quarter GDP growth to come in around 2.0% annualized, up from our previous estimate of 1.5%."

Sector News

Tobacco stocks have moved sharply lower over the course of the trading session, dragging the NYSE Arca Tobacco Index down by 2.7 percent.

Substantial weakness has also emerged among biotechnology stocks, as reflected by the 2.4 percent slump by the NYSE Arca Biotechnology Index.

Software, semiconductor, oil service, and steel stocks are also seeing considerable weakness amid broad based selling pressure.

Meanwhile, housing stocks are among the few groups bucking the downtrend, with Lennar (LEN) posting a notable gain after saying underlying housing market fundamentals remain favorable.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Wednesday. Japan's Nikkei 225 Index dipped by 0.2 percent, while Hong Kong's Hang Seng Index climbed by 0.6 percent.

Meanwhile, the major European markets have all moved lower on the day. While the U.K.'s FTSE 100 Index has fallen by 0.5 percent, the French CAC 40 Index and the German DAX Index are both down by 0.3 percent.

In the bond market, treasuries have 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, is down by 4.4 basis points at 2.370 percent.

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