Stocks Close Roughly Flat After Recovering From Early Sell-Off - U.S. Commentary

(RTTNews) - After falling sharply in early trading, stocks showed a substantial turnaround over the course of the trading session on Wednesday. The major averages climbed well off their worst levels of the day before closing near the unchanged line.

The Dow ended the session down just 0.33 points at 17,402.51 after falling nearly 280 points in early trading. The Nasdaq rose 7.60 points or 0.2 percent to 5,044.39, and the S&P 500 edged up 1.98 points or 0.1 percent to 2,086.05.

The early weakness on Wall Street came on the heels of news the Chinese central bank once again moved to devalue its currency.

The People's Bank of China set the daily reference rate at 6.3306 yuan per dollar, down 1.6 percent from the rate set on Tuesday. Combined with the drop seen on Monday, the currency was reduced by the most in over twenty years.

The move to devalue the yuan for the second straight day added to concerns about the Chinese economy as well as the possibility that it could start a currency war.

Adding to worries about the Chinese economy, the Chinese National Bureau of Statistics released disappointing reports on retail sales, industrial production and fixed asset investment.

Julian Evans-Pritchard, China Economist at Capital Economics, said, "July's weaker-than-expected activity and spending data will undoubtedly add to speculation that policymakers are trying to engineer a sustained devaluation of the renminbi in order to shore up growth."

"We think much of the data is not as bad as it looks and that with the impact of policy easing beginning to feed through into stronger credit growth, economic activity should hold up well in the months ahead," he added.

The subsequent turnaround shown by the markets as the day progressed partly reflected bargain hunting, with the Dow rebounding after falling to a six-month intraday low. The Nasdaq and the S&P 500 also hit their lowest levels in a month.

Shares of Apple (AAPL) also showed a significant rebound on the day, with the tech giant ending the day up by 1.5 percent after falling by as much as 3.4 percent.

Sector News

Gold stocks moved sharply higher over the course of the trading day, driving the NYSE Arca Gold Bugs Index up by 7.3 percent. With the gain, the index reached its best closing level in almost a month.

The rally by gold stocks came amid an increase by the price of the precious metal, with gold for December delivery climbing $15.90 to $1,123.60 an ounce.

Considerable strength also emerged among energy stocks, which moved higher as crude oil for September delivery rose $0.22 to $43.30 a barrel.

Reflecting the strength in the energy sector, the NYSE Arca Natural Gas Index surged up by 2.1 percent, while the Philadelphia Oil Service Index and the NYSE Arca Oil & Gas Index both jumped by 1.6 percent.

Utilities stocks also showed a strong move to the upside on the day, resulting in a 1.5 percent gain by the Dow Jones Utilities Average. With the gain, the average reached its best closing level in well over five months.

On the other hand, significant weakness remained visible among banking stocks, as reflected by the 1.5 loss posted by the Dow Jones Banks Index. The drop pulled the index down to a one-month closing low.

Airline and brokerage stocks also saw some weakness at the close but ended the session well off their worst levels of the day.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw substantial weakness during trading on Wednesday. Japan's Nikkei 225 Index slumped by 1.6 percent, while Hong Kong's Hang Seng Index plunged by 2.4 percent.

The major European markets also moved sharply lower on the day. While the U.K.'s FTSE 100 Index dropped by 1.4 percent, the German DAX Index and the French CAC 40 Index plummeted by 3.3 percent and 3.4 percent, respectively.

In the bond market, treasuries pulled back well off their early highs to end the day roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.13 percent after hitting a low of 2.082 percent.

Looking Ahead

While traders are likely to keep an eye on developments in China, U.S. economic reports on retail sales, import and export prices, and weekly jobless claims are also likely to attract attention on Thursday.

Trading could also be impacted by reaction to earnings news from networking giant Cisco Systems (CSCO), which is releasing its fiscal fourth quarter results after the close of today's trading.