Worries About Iraq Lead To Substantial Downturn On Wall Street - U.S. Commentary

(RTTNews) - After moving mostly higher in morning trading, stocks showed a substantial downturn over the course of the trading session on Tuesday. The major averages pulled back well off their early highs and into negative territory.

While the major average regained some ground late in the day, they still closed in the red. The Dow slid 119.13 points or 0.7 percent to 16,818.13, the Nasdaq dropped 18.32 points or 0.4 percent to 4,350.36 and the S&P 500 fell 12.63 points or 0.6 percent to 1,949.98.

The downturn by stocks was largely attributed to concerns about the escalating conflict in Iraq, which inspired some traders to cash in on the recent strength in the markets.

Adding to worries about a broader regional conflict was a report from the Wall Street Journal indicating that Syrian warplanes struck targets in western Iraq.

The attack was reportedly part of an effort by foreign allies of Baghdad's Shiite-dominated government to shore up Iraqi armed forces and curb the advances of Sunni insurgents.

The geopolitical concerns seemed to overshadow a pair of much better than expected U.S. economic reports, including a Commerce Department report showing that new home sales jumped to a six-year high in May.

The report said new home sales soared 18.6 percent to a seasonally adjusted annual rate of 504,000 in May after rising 3.7 percent to a revised rate of 425,000 in April. Economists had expected sales to climb to a rate of 440,000.

With the much bigger than expected increase, new home sales reached their highest level since hitting a matching rate in May of 2008.

Additionally, the Conference Board said its consumer confidence index jumped to 85.2 in June from a revised 82.2 in May, reaching its highest level since January of 2008.

Economists had expected the consumer confidence index to edge up to 83.5 from the 83.0 originally reported for the previous month.

Sector News

After moving notably higher over the past few sessions, gold stocks showed a substantial move back to the downside on the day. The NYSE Arca Gold Bugs Index tumbled by 3 percent after ending the previous session at a three-month closing high.

The pullback by gold stocks came despite a continued increase by the price of the precious metal, with gold for August delivery climbing $2.90 to $1,321.30 an ounce.

Oil service stocks also saw substantial weakness on the day, as reflected by the 2.1 percent loss posted by the Philadelphia Oil Service Index. With the loss, the index pulled back further off the nearly six-year closing high it set last Friday.

Considerable weakness also emerged among brokerage stocks, resulting in a 1.5 percent drop by the NYSE Arca Broker/Dealer Index. Investment Technology Group (ITG) helped lead the sector lower after JP Morgan downgraded its rating on the company's stock to Neutral from Overweight.

Natural gas, defense, networking, and railroad stocks also saw significant weakness, reflecting the broad based selling pressure that emerged on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Tuesday. Japan's Nikkei 225 Index inched up by 0.1 percent, while Hong Kong's Hang Seng Index rose by 0.3 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index edged down by 0.2 percent, the German DAX Index and the French CAC 40 Index crept up by 0.2 percent and 0.1 percent, respectively.

In the bond market, treasuries showed a notable move to the upside amid the geopolitical concerns. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 3.7 basis points to 2.586 percent.

Looking Ahead

While developments overseas could impact trading on Wednesday, traders are also likely to keep an eye on a report on durable goods orders.