Renewed Fed Concerns Weigh On Wall Street - U.S. Commentary

(RTTNews) - Stocks showed a notable move to the downside during trading on Tuesday after ending the previous session mixed. Renewed worries about the outlook for the Federal Reserve's stimulus program contributed to the weakness in the markets.

The major averages moved roughly sideways going into the close, stuck firmly in negative territory. The Dow fell 93.39 points or 0.6 percent to 15,518.74, the Nasdaq slid 27.18 points or 0.7 percent to 3,665.77 and the S&P 500 dropped 9.77 points or 0.6 percent to 1,697.37.

The weakness on Wall Street came as upbeat data on the U.S. trade deficit and comments from two Fed officials led to renewed concerns about the central bank's asset purchase program.

Before the start of trading, the Commerce Department released a report showing that the trade deficit narrowed by much more than expected in the month of June.

The report said the trade deficit narrowed to $34.2 billion in June from a revised $44.1 billion in May, while economists had expected the deficit to narrow to $43.0 billion.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said the narrower than expected trade deficit suggests that second quarter GDP growth was significantly stronger than the preliminary estimate of 1.7 percent.

A substantial upward revision to pace of GDP growth in the second quarter could indicate to the Fed that the economy is on firmer footing and capable of handling a tapering of its asset purchase program.

Adding to the worries about the Fed's stimulus program, Atlanta Fed President Dennis Lockhart told Market News International that the decision to begin scaling back bond purchases could come at any of the three remaining policy meetings this year.

The Fed's next monetary policy meeting is scheduled for September, and many economists have suggested that is when the central bank will start to taper.

Lockhart, who is not a voting member of the Fed's monetary policy setting committee, noted that he'll be closely watching the incoming economic data for "the next few weeks."

Chicago Fed President Charles Evans made similar comments, telling reporters that the Fed is quite likely to reduce the flow of purchases starting later this year.

Sector News

While most of the major sectors moved to the downside, gold stocks posted particularly steep losses on the day. Reflecting the weakness in the sector, the NYSE Arca Gold Bugs Index tumbled by 6 percent to its lowest closing level in almost a month.

The weakness among gold stocks came amid a notable decrease by the price of the precious metal, with gold for December delivery sliding $19.90 to $1,282.50 an ounce.

Significant weakness was also visible among airline stocks, as reflected by the 2.2 percent loss posted by the NYSE Arca Airline Index. Industry giant United Continental (UAL) helped to lead the sector lower, falling by 3.8 percent.

Housing stocks also saw considerable weakness on the day, with the Philadelphia Housing Sector Index dropping by 2.2 percent. PulteGroup (PHM) an MDC Holdings (MDC) turned in two of the sector's worst performances.

Biotechnology, healthcare provider and steel stocks also posted notable losses, reflecting broad based weakness in the markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Tuesday. Japan's Nikkei 225 Index advanced by 1 percent, while Hong Kong's Hang Seng Index tumbled by 1.3 percent.

Meanwhile, the major European markets all came under pressure on the day. While the German DAX Index dropped by 1.2 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index fell by 0.4 percent and 0.2 percent, respectively.

In the bond market, treasuries climbed well off their early lows to end the session roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day up by less than a basis point at 2.642 percent.

Looking Ahead

Amid a relatively quiet day on the U.S. economic front, trading on Wednesday could be impacted by reaction to earnings news from Disney (DIS), which is releasing its quarterly results after the close of today's trading.