Geopolitical, Fed Concerns Lead To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - After ending the previous session mixed, stocks showed a substantial move to the downside over the course of the trading day on Thursday. The steep losses on the day pulled the Dow down to a two-month closing low, while the S&P 500 ended the session at its worst closing level in well over a month.

The major averages ended the day at or near their lows for the session. The Dow plummeted 317.06 points or 1.9 percent to 16,563.30, the Nasdaq tumbled 93.13 points or 2.1 percent to 4,369.77 and the S&P 500 plunged 39.40 points or 2 percent to 1,930.67.

The sell-off on Wall Street partly reflected lingering geopolitical concerns amid the ongoing conflicts in Ukraine and Gaza as well as news that Argentina missed a debt payment.

A report showing that Eurozone inflation slowed to the lowest level in four-and-a-half years in July also raised concerns about the risk of deflation.

Traders also reacted negatively to a report from the Labor Department showing that U.S. employee compensation costs increased by more than expected in the second quarter.

The report said compensation costs increased by 0.7 percent in the second quarter, reflecting the fastest rate of growth since the third quarter of 2008. Economists had been expecting a 0.5 percent increase.

The bigger than expected increase in compensation costs further fueled speculation that the Federal Reserve could begin raising interest rates sooner than previously anticipated.

A separate report from the Labor Department showed that initial jobless claims saw a notable rebound in the week ended July 26th.

The report said initial jobless claims climbed to 302,000, an increase of 23,000 from the previous week's revised level of 279,000. Economists had expected jobless claims to rise to 301,000.

The previous week's revised level represents the lowest number of jobless claims since May of 2000, when claims hit 276,000.

Following the jobless claims data, traders expressed some uncertainty ahead of the release of the Labor Department's more closely watched monthly jobs report on Friday.

MNI Indicators also released a report showing a substantial slowdown in the pace of growth in Chicago-area business activity in the month of July.

Sector News

Most of the major sectors showed notable moves to the downside on the day, contributing to the sell-off by the broader markets.

Networking stocks turned in some of the market's worst performances, resulting in a 3.1 percent drop by the NYSE Arca Networking Index. With the loss, the index ended the session at its lowest closing level in well over two months.

Alcatel-Lucent (ALU) helped lead the networking sector lower, plummeting by 10.7 percent after reporting disappointing second quarter results.

Substantial weakness also emerged among telecom stocks, as reflected by the 2.8 percent loss posted by the NYSE Arca Telecom Index. Sprint (S) posted a particularly steep loss, tumbling by 5.3 percent.

Oil service stocks also saw significant weakness on the day, moving sharply lower along with the price of crude oil. With crude for September delivery plunging $2.10 to $98.17 a barrel, the Philadelphia Oil Service Index fell by 2.6 percent.

Biotechnology, internet, computer hardware, and defense stocks also saw considerable weakness amid broad based selling pressure.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Thursday. Japan's Nikkei 225 Index edged down by 0.2 percent, while Hong Kong's Hang Seng Index ticked up by 0.1 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.'s FTSE 100 Index dropped by 0.6 percent, the French CAC 40 Index and the German DAX Index tumbled by 1.5 percent and 1.9 percent, respectively.

In the bond market, treasuries closed nearly flat after recovering from an early move to the downside. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 2.556 percent.

Looking Ahead

The Labor Department's monthly jobs report is likely to overshadow a slew of other economic data due to be released on Friday, including reports on personal income and spending, manufacturing activity, and construction spending.

On the earnings front, Burger King (BKW), Chevron (CVX), Clorox (CLX), and Procter & Gamble (PG) are among the companies due to report their quarterly results before the start of trading on Friday.