Renewed Rate Hike Worries Lead To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading session on Friday amid renewed concerns about the outlook for interest rates. The Dow and the S&P 500 tumbled to two-month closing lows, while the Nasdaq hit its lowest closing level in well over a month.

The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Dow slumped 394.46 points or 2.1 percent to 18,085.45, the Nasdaq plummeted 133.57 points or 2.5 percent to 5,125.91 and the S&P 500 dove 53.49 points or 2.5 percent to 2,127.81.

With the steep drop on the day, the major averages moved notably lower for the week. The Dow sunk by 2.2 percent, while the Nasdaq and the S&P 500 both plunged by 2.4 percent.

The sell-off on Wall Street came as comments from some Federal Reserve officials reignited worries about a near-term interest rate hike.

In a speech this morning, Boston Fed President Eric said gradual tightening of monetary policy is likely to be appropriate to ensure the U.S. economy remains at the full employment level it is now approaching.

Rosengren added that "a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery."

Dallas Fed President Robert Kaplan also said the case for raising rates has strengthened in recent months and noted the markets have gotten plenty of notice the Fed is looking for opportunities to remove accommodation.

Meanwhile, Fed Governor Daniel Tarullo told CNBC a rate hike this year is possible but said he wants to see more evidence of sustained inflation before considering an increase.

The Fed is scheduled to hold its next monetary policy meeting in about two weeks, with two subsequent meetings scheduled for November and December.

Geopolitical concerns also weighed on the markets following North Korea's claim that it successfully tested a miniaturized nuclear warhead.

While North Korea argued the test would provide protection against "threats and sanctions" by U.S.-led hostile forces, China's state-run Xinhua news agency warned the communist nation that it will not benefit from war and instability in Northeast Asia.

President Barack Obama condemned the test in the strongest possible terms, calling it a grave threat to regional security and to international peace and stability.

Sector News

Most of the major sectors moved to the downside on the day, although gold stocks posted particularly steep losses. Reflecting the weakness in the gold sector, the NYSE Arca Gold Bugs Index plunged by 5.2 percent.

The sharp decline by gold stocks came amid a decrease by the price of the precious metal, with gold for December sliding $7.10 to $1,334.50 an ounce.

Substantial weakness was also visible among electronic storage stocks, as reflected by the 5.4 percent drop by the NYSE Arca Disk Drive Index. With the loss, the index pulled back further off Wednesday's two-month closing high.

Violin Memory (VMEM) led the storage sector lower, plummeting by 36.9 percent after reporting second quarter revenues that fell sharply compared to the same quarter a year ago.

Steel stocks also saw considerable weakness on the day, dragging the NYSE Arca Steel Index down by 5.1 percent. The index ended the session at its lowest closing level in two months.

Energy stocks also came under significant selling pressure amid a sharp pullback by the price of crude oil, moving notably lower along with interest rate-sensitive commercial real estate and utilities stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in yet another mixed performance on Friday. Japan's Nikkei 225 Index closed slightly higher and Hong Kong's Hang Seng Index advanced by 0.8 percent, while China's Shanghai Composite Index fell by 0.6 percent.

Meanwhile, the major European markets all moved notably lower on the day. While the U.K.'s FTSE 100 Index slumped by 1.2 percent, the French CAC 40 Index and the German DAX Index tumbled by 1.1 percent and 1 percent, respectively.

In the bond market, treasuries extended the notable decline seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.6 basis points to a two-month closing high of 1.672 percent.

Looking Ahead

The economic calendar for next week starts out relatively quiet but heats up considerably in the latter part of the week. Traders are likely to keep a close eye on reports on retail sales, industrial production, and producer and consumer price inflation.