Stocks Climb Well Off Worst Levels But Close In The Red - U.S. Commentary

(RTTNews) - After showing a substantial move to the downside in morning trading on Thursday, stocks regained some ground as the day progressed but still closed in the red. With the losses on the day, the major averages fell to their lowest closing levels in about two months.

The major averages finished the session firmly in negative territory but well off their worst levels. The Dow fell 91.22 points or 0.5 percent to 17,435.40, the Nasdaq slid 26.59 points or 0.6 percent to 4,712.53 and the S&P 500 dropped 7.59 points or 0.4 percent at 2,040.04.

The sell-off seen early in the session reflected renewed concerns about the outlook for interest rates following yesterday's release of the minutes of the Federal Reserve's latest monetary policy meeting.

The minutes of the Fed's April meeting hinted strongly at the possibility of an interest rate hike at the central bank's next meeting in June.

Most participants determined it would likely be appropriate to raise rates next month if incoming economic data supports such a move.

In a speech this morning, New York Fed President William Dudley predicted June would definitely be a "live meeting" and said he is "quite pleased" to see the markets reflecting an increased probability of a rate hike in June or July.

However, analysts have noted the potential for a June rate hike will depend on the incoming data, increasing the focus on upcoming reports.

The Labor Department released a report this morning showing a pullback in initial jobless claims in the week ended May 14th.

The report said initial jobless claims fell to 278,000, a decrease of 16,000 from the previous week's unrevised level of 294,000. Economists had expected jobless claims to drop to 275,000.

With the decrease, jobless claims pulled back after reaching their highest level in fourteen months in the previous week.

A separate report from the Philadelphia Federal Reserve unexpectedly showed a continued contraction in regional manufacturing activity in the month of May.

The Philly Fed said its diffusion index for current activity edged down to a negative 1.8 in May from a negative 1.6 in April, with a negative reading indicating a contraction in regional manufacturing activity.

The slight decrease by the index came as a surprise to economists, who had expected the index to climb to a positive 3.0.

Meanwhile, the Conference Board said its index of leading economic indicators climbed by 0.6 percent in April compared to economist estimates for a 0.4 percent increase.

Sector News

While most of the major sectors climbed off their worst levels of the day, significant weakness remained visible among brokerage stocks.

Reflecting the weakness in the brokerage sector, the NYSE Arca Broker/Dealer Index tumbled by 1.6 percent after jumping by 3.3 percent on Wednesday.

Biotechnology stocks also finished the session notably lower, dragging the NYSE Arca Biotechnology Index down by 1.5 percent. Agios Pharmaceuticals (AGIO) led the way lower, plunging by 10.3 percent.

News of the crash of EgyptAir flight 804 also weighed on airline stocks, which moved lower along with railroad and commercial real estate stocks.

On the other hand, gold stocks rebounded after falling sharply in the previous session, with the NYSE Arca Gold Bugs Index jumping by 2 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Hong Kong's Hang Seng Index fell by 0.7 percent, while Australia's All Ordinaries Index slid by 0.6 percent. Japan's Nikkei 225 Index closed nearly unchanged.

The major European markets also showed notable moves to the downside on the day. While the French CAC 40 Index slid by 0.9 percent, the German DAX Index tumbled by 1.5 percent and the U.K.'s FTSE 100 Index plunged by 1.8 percent.

In the bond market, treasuries regained ground after moving sharply lower in the previous session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.5 basis points to 1.845 percent.

Looking Ahead

While the economic calendar for Friday is relatively quiet, traders are likely to keep an eye on a report on existing home sales in April.

Existing home sales are expected to rise to an annual rate of 5.40 million in April after jumping to a rate of 5.33 million in March.

On the earnings front, Applied Materials (AMAT), Autodesk (ADSK), Brocade (BRCD), and Gap (GPS) are among the companies releasing their quarterly results after the close of today's trading.

Campbell Soup (CPB), Deere (DE), and Foot Locker (FL) are also due to report their results before the start of trading on Friday.