Stocks Close Firmly Negative Amid Interest Rate Worries - U.S. Commentary

(RTTNews) - After showing a lack of direction throughout morning trading on Friday, stocks came under pressure over the course of the afternoon. With the pullback on the day, the Dow and the S&P 500 ended the session at their lowest closing levels in a month.

The major averages closed firmly in negative territory but off their lows for the session. The Dow slumped 185.18 points or 1.1 percent to 17,535.32, the Nasdaq dropped 19.66 points or 0.4 percent to 4,717.68 and the S&P 500 slid 17.50 points or 0.9 percent to 2,046.61.

With the losses on the day, the major averages all closed lower for the week. The Dow tumbled by 1.2 percent, while the Nasdaq and the S&P 500 fell by 0.4 percent and 0.5 percent, respectively.

The weakness that emerged on Wall Street came as upbeat retail sales data led to renewed concerns about the outlook for interest rates.

Before the start of trading, the Commerce Department released a report showing much stronger than expected retail sales growth in the month of April.

The Commerce Department said retail sales surged up by 1.3 percent in April after slipping by 0.3 percent in March. Economists had expected sales to climb by 0.9 percent.

Excluding a jump in auto sales, retail sales still rose by 0.8 percent in April compared to an upwardly revised 0.4 percent increase in March. Ex-auto sales had been expected to rise by 0.5 percent.

A separate report from the University of Michigan also showed that consumer sentiment jumped to an eleven-month high in May.

The reports generated some optimism about the economic outlook, although the data also led to speculation about the possibility of an interest rate hike next month.

In response to the retail sales data, Steve Murphy, U.S. economist at Capital Economics, said a June rate hike by the Federal Reserve is a toss-up.

"The activity data certainly warrants a hike, but separately we are becoming worried that May's employment figures could be pulled down by a couple of big temporary factors," Murphy said.

He added, "Given how cautious the Yellen-led Fed has shown itself to be, the decision next month could go either way."

The Labor Department also released a report showing a modest rebound in producer prices in the month of April, although prices were flat compared to the same month a year ago.

Sector News

Steel stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Steel Index down by 3 percent. With the drop, the index fell to its lowest closing level in over a month.

A.M. Castle (CAS) posted a particularly steep loss on the day, plunging by 57 percent after ending the previous session at a nearly ten-month closing high.

Considerable weakness was also visible among oil service stocks, as reflected by the 2.5 percent loss posted by the Philadelphia Oil Service Index. The weakness in the sector came as crude for June delivery slid $0.49 to $46.21 a barrel.

Banking stocks also came under pressure as the day progressed, resulting in a 1.6 percent drop by the Dow Jones Banks Index. The index ended the session at a one-month closing low.

Transportation, brokerage, retail, and telecom stocks also saw notable weakness, while gold stocks bucked the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved to the downside during trading on Friday. Japan's Nikkei 225 Index tumbled by 1.4 percent, while Hong Kong's Hang Seng Index slumped by 1 percent.

Meanwhile, the major European markets all moved higher on the day. While the German DAX Index advanced by 0.9 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index both climbed by 0.6 percent.

In the bond market, treasuries climbed firmly into positive territory after ending the previous session in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.2 basis points to 1.705 percent.

Looking Ahead

While the economic calendar for this past week was relatively quiet, next week's trading may be impacted by reaction to reports on consumer prices, housing starts, industrial production, and existing home sales.

The Fed is also scheduled to release the minutes of its latest monetary policy meeting, which could shed some light on the outlook for interest rates.

On the earnings front, Wal-Mart (WMT), Home Depot (HD), Target (TGT), and Cisco Systems (CSCO) are among the companies due to report their quarterly results next week.