Profit Taking, Drop In Oil Prices Drag Stocks Sharply Lower - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading day on Thursday, giving back ground on the heels of the rally seen in the previous session. The pullback came after the major averages closed higher for three straight days.

The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Dow tumbled 253.25 points or 1.4 percent to 17,495.84, the Nasdaq slumped 68.58 points or 1.4 percent to 5,002.55 and the S&P 500 plunged 31.18 points or 1.5 percent to 2,041.89.

Profit taking contributed to the weakness on Wall Street following yesterday's strong gains, which came after the monetary policy decision by the Federal Reserve.

The Fed's decision to raise interest rates by a quarter point was widely expected, and the central bank seemed to convince traders any further rate hikes will be gradual.

Fed Chair Janet Yellen stressed that any additional rate hikes going forward would be based on incoming economic data.

With most signs pointing to strength in the labor market, analysts have suggested the focus should be on inflation, which is currently below the Fed's 2 percent target.

A decrease by the price of crude oil also weighed on the markets, with crude for January delivery sliding $0.57 to a nearly seven-year closing low of $34.95 a barrel.

On the economic front, the Labor Department released a report before the start of trading showing a bigger than expected pullback in initial jobless claims in the week ended December 12th.

The report said initial jobless claims fell to 271,000, a decrease of 11,000 from the previous week's unrevised level of 282,000. Economists had expected jobless claims to pull back to 275,000.

The Conference Board also released a report showing that its leading economic indicators index rose by 0.4 percent in November, exceeding economist estimates for a 0.2 percent increase.

Meanwhile, a separate report from the Philadelphia Federal Reserve showed an unexpected contraction in regional manufacturing activity in December.

Sector News

Gold stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Gold Bugs Index down by 7.1 percent. With the steep drop, the index fell to its lowest closing level in almost a month.

The sell-off by gold stocks came amid a sharp drop by the price of the precious metal, with gold for February delivery tumbling $27.20 to $1,049.60 an ounce.

Significant weakness was also visible among energy stocks, which came under pressure along with the price of crude oil.

Reflecting the weakness in the energy sector, the Philadelphia Oil Service Index plunged by 4.2 percent and the NYSE Arca Natural Gas Index slumped by 3.1 percent.

Railroad stocks also saw considerable weakness on the day, resulting in a 3.1 percent drop by the Dow Jones Railroads Index. Norfolk Southern (NSC) and Kansas City Southern (KSU) posted steep losses.

Steel, housing, computer hardware, and chemical stocks also showed notable moves to the downside, reflecting broad based weakness on Wall Street.

Other Markets

In overseas trading, most stock markets across the Asia-Pacific region saw considerable strength during trading on Thursday. Japan's Nikkei 225 Index shot up by 1.6 percent, while China's Shanghai Composite Index jumped by 1.8 percent.

The major European markets also showed strong moves to the upside on the day. While the German DAX Index surged up by 2.6 percent, the French CAC 40 Index advanced by 1.1 percent and the U.K.'s FTSE 100 Index climbed by 0.9 percent.

In the bond market, treasuries regained some ground after moving lower over the past three sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.9 basis points to 2.238 percent.

Looking Ahead

Trading activity may be somewhat subdued on Friday amid a lack of major U.S. economic data, but traders are likely to keep an eye on remarks by Richmond Fed President Jeffrey Lacker.