Stocks Resume Recent Sell-Off, Plunge To Three-Month Lows - U.S. Commentary

(RTTNews) - After a brief respite earlier this week, stocks resumed their recent sell-off over the course of the trading session on Wednesday. With the steep drop on the day, the major averages plunged to their worst closing levels in well over three months.

The major averages ended the session substantially lower, near their worst levels of the day. The Dow tumbled 364.81 points or 2.2 percent to 16,151.41, the Nasdaq plummeted 159.85 points or 3.4 percent to 4,526.06 and the S&P 500 dove 48.40 points or 2.5 percent to 1,890.28.

Stocks initially benefited from strength in the overseas markets, but buying interest waned shortly after the start of trading.

Traders have recently seemed reluctant to buy stocks, as concerns about the global economy have continued to generate downward momentum.

The subsequent downturn by the markets was spurred in part by a significant pullback by the price of crude oil.

After reaching a high of $31.71 a barrel, the price of crude oil pulled back into negative territory, although crude for February ended the day up $0.04 at $30.48 a barrel.

The price of crude oil came under pressure following the release of a report from the Energy Information Administration showing a much smaller than expected increase in crude oil inventories.

The report said crude oil inventories edged up by 0.2 million barrels in the week ended January 8th compared to expectations for an increase of about 2.5 million barrels.

Later in the day, the Federal Reserve released its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts.

Reports from the twelve Fed districts indicated that economic activity has expanded in nine of the districts since the previous Beige Book.

Contacts in Boston were described as upbeat, while New York and Kansas City described economic activity in their districts as essentially flat.

The Fed is scheduled to hold its next monetary policy meeting later this month but is widely expected to leave interest rates unchanged.

Sector News

Most of the major sectors showed notable moves to the downside on the day, reflecting broad based weakness on Wall Street.

Biotechnology stocks posted particularly steep losses, dragging the NYSE Arca Biotechnology Index down by 5.3 percent. With the drop, the index fell to its lowest closing level in well over a year.

Agios Pharmaceuticals (AGIO), Celldex Therapeutics (CLDX), and Incyte (INCY) turned in some of the biotech sector's worst performances.

Substantial weakness was also visible among railroad stocks, as reflected by the 4.3 percent loss posted by the Dow Jones Railroads Index. The index tumbled to a nearly three-year closing low. CSX (CSX) posted a steep loss after warning of a challenging 2016.

Brokerage stocks also came under considerable pressure on the day, resulting in a 4.2 percent drop by the NYSE Arca Broker/Dealer Index. The drop pulled the index down to its lowest closing level in well over a year.

Internet, airline, retail, and electronic storage stocks also moved sharply lower, while gold stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday. Japan's Nikkei 225 Index surged up by 2.9 percent, while Hong Kong's Hang Seng Index jumped by 1.1 percent. However, China's Shanghai Composite Index bucked the uptrend and tumbled by 2.4 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index dipped by 0.3 percent, the French CAC 40 Index rose by 0.3 percent and the U.K.'s FTSE 100 Index climbed by 0.5 percent.

In the bond market, treasuries once again turned higher over the course of the session after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.6 basis points to a new two-month closing low of 2.066 percent.

Looking Ahead

Earnings news may attract some attention on Thursday, as financial giant JP Morgan (JPM) is due to release its fourth quarter results before the start of trading.

Trading could also be impacted by reaction to the release of reports on weekly jobless claims and import and exports prices.