Plus   Neg

Stocks Pulling Back Sharply After Seeing Early Strength - U.S. Commentary

wallstreet oct26 02may19 lt

After moving modestly higher early in the session, stocks have come under pressure over the course of the trading day on Thursday. With the downturn, the major averages are extending the pullback seen late in the previous session.

The major averages have seen further downside in recent trading, hitting new lows for the session. The Dow is down 234.23 points or 0.9 percent at 26,195.91, the Nasdaq is down 71.95 points or 0.9 percent at 7,977.69 and the S&P 500 is down 20.99 points or 0.7 percent at 2,902.74.

The pullback on Wall Street has been attributed to continued disappointment in yesterday's remarks by Federal Reserve Chairman Jerome Powell suggesting the central bank is not likely to lower interest rates in the near future as some had hoped.

In his post-monetary policy meeting press conference, Powell said the Fed sees "transitory factors" contributing to recent low inflation readings.

Powell said the Fed would take persistently low inflation into account when setting policy but currently expects inflation to return to the 2 percent objective.

Traders may also be moving out of risky assets such as stocks ahead of the Labor Department's closely watched monthly jobs report on Friday.

Employment is expected to increase by 185,000 jobs in April following the addition of 196,000 jobs in March, while the unemployment rate is expected to hold at 3.8 percent.

Meanwhile, the markets have largely shrugged off the release of a batch of largely upbeat U.S. economic data, including a Labor Department report showing a spike in productivity.

The Labor Department said productivity surged up by 3.6 percent in the first quarter after climbing by a downwardly revised 1.3 percent in the fourth quarter.

Economists had expected production to jump by 2.2 percent compared to the 1.9 percent increase that had been reported for the previous quarter.

Meanwhile, the report also said unit labor costs dropped by 0.9 percent in the first quarter after soaring by 2.5 percent in the fourth quarter.

The pullback in unit labor costs came as a surprise to economists, who had expected costs to climb by 1.5 percent during the quarter.

"The good news is the economy is entirely capable of producing the kind of productivity necessary to keep inflation in check if growth accelerates. Hence, we can have faster growth, and real wage increases, too," said FTN Financial Chief Economist Chris Low.

He added, "The bad news, as featured prominently in yesterday's post-FOMC press conference, the Fed will continue to fight to prevent either from becoming a sustained reality, for our own good, of course."

A separate report from the Commerce Department showed new orders for manufactured goods jumped by more than expected in March amid a substantial rebound in orders for transportation equipment.

The Commerce Department said factory orders spiked by 1.9 percent in March after falling by a revised 0.3 percent in February. Economists had expected orders to surge up by 1.5 percent.

Sector News

Tobacco stocks have moved sharply lower over the course of the trading session, dragging the NYSE Arca Tobacco Index down by 3.6 percent.

Significant weakness has also emerged among energy stocks, which are moving lower along with the price of crude oil. Crude for June delivery is plunging $2.16 to $61.44 a barrel despite U.S. efforts to cut off Iranian oil exports.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index is down by 2.4 percent, the NYSE Arca Natural Gas Index is down by 2.2 percent and the NYSE Arca Oil Index is down by 1.4 percent.

Chemical, software, and gold stocks have also come under pressure on the day, contributing to the pullback by the broader markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Thursday, with markets in Japan and mainland China closed for holidays. Hong Kong's Hang Seng Index advanced by 0.8 percent, while Australia's S&P/ASX 200 Index fell by 0.6 percent.

Meanwhile, European stocks moved mostly lower on the day. While the German DAX Index closed just above the unchanged line, the U.K.'s FTSE 100 Index dropped by 0.5 percent and the French CAC 40 Index slumped by 0.9 percent.

In the bond market, treasuries are extending the pullback seen late in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 3.6 basis points at 2.547 percent.

For comments and feedback contact: editorial@rttnews.com

Follow RTT