Stocks Pull Back Sharply As Initial Buying Interest Fades - U.S. Commentary

(RTTNews) - Stocks once again came under pressure over the course of the trading day on Friday after failing to sustain an initial upward move. With the downturn, the major averages extended the steep drop seen in recent sessions, falling to new three-month lows.

The major averages saw further downside going into the close, ending the session near their worst levels of the day. The Dow slumped 167.65 points or 1 percent to 16,346.45, the Nasdaq slid 45.79 points or 1 percent to 4,643.63 and the S&P 500 tumbled 21.06 points or 1.1 percent to 1,922.03.

For the first week of the new year, the major averages posted substantial losses. The Nasdaq plummeted by 7.3 percent, while the Dow and the S&P 500 tumbled by 6.2 percent and 6 percent, respectively.

The initial strength on Wall Street was partly due to bargain hunting, as some traders picked up stocks at reduced levels following recent weakness.

The markets also benefited from a rebound by Chinese stocks, as the Chinese Shanghai Composite Index jumped by 2 percent overnight.

Chinese stocks have fallen sharply in recent sessions, leading to two trading halts this week. The volatility led regulators to suspend the circuit breaker system.

Nonetheless, buying interest waned not long after the open, as traders seemed reluctant to get back into the markets amid lingering concerns about the global economy.

The subsequent pullback by the markets was partly attributed to a decrease by the price of crude oil, with crude for February delivery slipping $0.11 to 33.16 a barrel.

The price of crude oil fell to its lowest closing level in nearly twelve years amid ongoing concerns about a global supply glut.

Recent downward momentum also weighed on the markets, as traders continued to sell stocks despite the lack of any other major catalyst.

In U.S. economic news, the Labor Department released a report before the start of trading showing much stronger than expected job growth in the month of December.

The Labor Department said non-farm payroll employment climbed by 292,000 jobs in December compared to economist estimates for an increase of about 200,000 jobs.

Meanwhile, the unemployment rate held at a more than seven-year low of 5.0 percent in December, matching expectations.

Sector News

After bucking the downtrend seen in recent sessions, gold stocks finally joined in the sell-off on the day. The NYSE Arca Gold Bugs Index plunged by 3 percent after ending Thursday's trading at a two-month closing high.

The pullback by gold stocks came amid a decrease by the price of the precious metal, as gold for February delivery fell $9.90 to $1,097.90 an ounce.

Electronic storage stocks also saw substantial weakness on the day, dragging the NYSE Arca Disk Drive Index down by 2.9 percent. With the drop, the index ended the session at its lowest closing level in well over six years.

Ongoing concerns about Chinese demand also contributed to continued weakness among steel stocks, as reflected by the 2.7 percent loss posted by the NYSE Arca Steel Index. The index fell to a new record closing low.

Housing, banking, airline, and energy stocks also saw considerable weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index fell by 0.4 percent, while Hong Kong's Hang Seng Index rose by 0.6 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the U.K.'s FTSE 100 Index dropped by 0.7 percent, the German DAX Index and the French CAC 40 Index slumped by 1.3 percent and 1.6 percent, respectively.

In the bond market, treasuries fluctuated over the course of the session before closing modestly higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped 2.3 basis points to a two-month closing low of 2.13 percent.

Looking Ahead

The economic calendar is relatively quiet for much of next week, although several key reports are scheduled to be released next Friday.

Traders are likely to keep an eye on reports on retail sales, producer price inflation, industrial production, and consumer sentiment.

Aluminum giant Alcoa (AA) is also scheduled to release its fourth quarter results after the close of trading next Monday, marking the unofficial start of earnings season.

JP Morgan (JPM), Intel (INTC), Citigroup (C), and Wells Fargo (WFC) are due to report their quarterly results later in the week.