Stocks Fall Sharply Along With The Price Of Crude Oil - U.S. Commentary

(RTTNews) - Stocks saw substantial weakness during trading on Friday, more than offsetting the moderate strength seen in the previous session. With the sharp pullback on the day, the S&P 500 fell to its lowest closing level in nearly two months.

The major averages ended the session near their worst levels of the day. The Dow slumped 309.54 points or 1.8 percent to 17,265.21, the Nasdaq plunged 111.71 points or 2.2 percent to 4,933.47 and the S&P 500 tumbled 39.86 points or 1.9 percent to 2,012.37.

For the week, the major averages all posted steep losses, the Dow plummeted by 3.3 percent, while the Nasdaq and the S&P 500 dove by 4.1 percent and 3.8 percent, respectively.

The sell-off on Wall Street was largely due to a continued decrease by the price of crude oil, which has fallen sharply amid ongoing concerns about global oversupply.

Crude oil for January delivery tumbled $1.14 to end the day $35.62 a barrel, its worst closing level since February of 2009.

The continued decrease by the price of crude oil came after the International Energy Agency warned the global supply glut would continue into the New Year.

Concerns about the outlook for monetary policy also weighed, as the Federal Reserve is due to hold its highly anticipated meeting next week.

While the Fed is widely expected to announce an increase in interest rates, traders will be looking to the accompanying statement for clues about the outlook for further rate hikes.

On the economic front, the Commerce Department released a report before the start of trading showing that retail sales rose by slightly less than expected in the month of November.

The report said retail sales rose by 0.2 percent in November after inching up by 0.1 percent in October. Economists had expected sales to increase by about 0.3 percent.

However, core retail sales, which exclude autos, gasoline, and building materials, increased by 0.6 percent in November after rising by 0.2 percent in October.

Steve Murphy, U.S. economist at Capital Economics, said, "All things considered, the November retail sales report reaffirms our view that real consumption will be around 2.5% annualized in the fourth quarter."

"More importantly, it dismisses any concerns of a potential slump in household spending after a couple of weaker months in August and September," he added. "Not that there is much doubt any more, but this supports the case for a rate hike by the Fed next week."

A separate report from the Labor Department showed an unexpected rebound in producer prices in November, while the University of Michigan reported a modest improvement in consumer sentiment in December.

Sector News

The continued decrease by the price of crude oil contributed to substantial weakness among energy stocks, which pulled back sharply after regaining some ground over the past couple sessions.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index plunged by 5.7 percent, while the NYSE Arca Oil & Gas Index and the Philadelphia Oil Service Index slumped by 3.6 percent and 2.9 percent, respectively.

Considerable weakness was also visible among airline stocks, as reflected by the 3.7 percent loss posted by the NYSE Arca Airline Index. With the loss, the index fell to a two-month closing low.

Steel, brokerage, biotechnology, and chemical stocks also saw significant weakness on the day, reflecting broad based selling pressure on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Friday. Hong Kong's Hang Seng Index slumped by 1.1 percent, while China's Shanghai Composite Index fell by 0.6 percent. However, Japan's Nikkei 225 Index bucked the downtrend with a 1 percent advance.

The major European markets also saw significant weakness on the day. While the French CAC 40 Index tumbled by 1.8 percent, the U.K.'s FTSE 100 Index and the German DAX Index plunged by 2.2 percent and 2.4 percent, respectively.

In the bond market, treasuries moved sharply higher amid the sell-off on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plummeted by 10 basis points to 2.139 percent.

Looking Ahead

The Fed meeting is likely to be in the spotlight next week, with the central bank due to announce its latest monetary policy decision Wednesday afternoon.

Ahead of the announcement, trading could be impacted by reports on consumer prices, housing starts, and industrial production.