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Stocks Close Lower Amid Continued Drop In Bond Yields - U.S. Commentary

wallstreet aug28 27mar19 lt

Stocks fluctuated over the course of the trading session on Wednesday before ending the day mostly lower. The choppy trading on the day partly reflected the volatility shown by the markets over the past several sessions.

The major averages eventually closed in negative territory but well off their worst levels of the day. The Dow edged down 32.14 points or 0.1 percent to 25,625.59, the Nasdaq slid 48.15 points or 0.6 percent to 7,643.38 and the S&P 500 fell 13.09 points or 0.5 percent to 2,805.37.

The lower close on Wall Street came amid a notable drop by bond yields, which extended the downward trend seen over the past few sessions. The yield on the benchmark ten-year note ended the day at its lowest closing level since December of 2017.

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 were also reacting to 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

Biotechnology stocks showed a significant move to the downside on the day, dragging the NYSE Arca Biotechnology Index down by 1.8 percent.

Considerable weakness was also visible among tobacco stocks, as reflected by the 1.5 percent drop by the NYSE Arca Tobacco Index.

Semiconductor, telecom, gold, and software stocks also saw notable weakness, moving lower along with most of the other major sectors.

Meanwhile, housing stocks bucked the downtrend on the day, with the Philadelphia Housing Sector Index jumping by 1.5 percent.

Homebuilder Lennar (LEN) posted a strong gain after reporting weaker than expected fiscal first quarter results but 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 showed a lack of direction before ending the day nearly flat. While the French CAC 40 Index edged down by 0.1 percent, the U.K.'s FTSE 100 Index and the German DAX Index closed nearly unchanged.

In the bond market, treasuries extended a recent move to the upside. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4 basis points to 2.374 percent.

Looking Ahead

Economic data may attract attention on Thursday, with traders likely to keep an eye on reports on fourth quarter GDP, weekly jobless claims, and pending home sales.

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