Stocks Close Firmly Negative But Well Off Worst Levels – U.S. Commentary

Stocks Close Firmly Negative But Well Off Worst Levels – U.S. Commentary

After falling sharply in morning trading on Friday, stocks regained some ground in the afternoon but still ended the day mostly lower. With the drop on the day, the major averages added to the notable losses posted in the previous session.

The major averages ended the day firmly in negative territory but well off their lows of the session. The Dow slid 180.43 points or 0.7 percent to 26,447.05, the Nasdaq tumbled 91.06 points or 1.2 percent to 7,788.45 and the S&P 500 fell 16.04 points or 0.6 percent to 2,885.57.

For the week, the Dow edged down by less than a tenth of a percent, while the S&P 500 slumped by 1 percent and the Nasdaq plunged by 3.2 percent to its lowest closing level in well over a month.

The weakness on Wall Street came as treasury yields extended a recent upward move following the release of the monthly jobs report, adding to recent concerns about the outlook for interest rates.

While the Labor Department report showed weaker than expected job growth in September, the jump in employment in August was upwardly revised and the unemployment rate fell to its lowest level since 1969.

The Labor Department said non-farm payroll employment climbed by 134,000 jobs in September, while economists had expected an increase of about 185,000 jobs.

However, the report also showed a significant upward revision to the pace of job growth in August, with employment spiking by 270,000 jobs compared to the originally reported jump of 201,000 jobs.

The Labor Department also said the unemployment rate fell to 3.7 percent in September from 3.9 percent in August. The unemployment rate had been expected to edge down to 3.8 percent.

With the bigger than expected decrease, the unemployment rate fell to its lowest level since hitting 3.5 percent in December of 1969.

Average hourly employee earnings rose by $0.08 or 0.3 percent to $27.24 in September, reflecting a year-over-year increase of 2.8 percent.

“Overall, a strong report that will keep the Fed firmly on track to continue raising rates once a quarter, with the next hike likely to come in December,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

A separate report from the Commerce Department showed the U.S. trade deficit widened in August, reflecting an increase in imports and a decrease in exports.

The Commerce Department said the trade deficit widened to $53.2 billion in August from a revised $50.0 billion in July. Economists had expected the trade deficit to widen to $53.5 billion.

Pearce said the data suggests “net trade is on track to be a substantial drag on GDP growth in the third quarter, which we expect will come in at 3.0% annualized.”

Sector News

Semiconductor stocks showed a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 2.3 percent. With the drop, the index ended the session at its lowest closing level in three months.

Xilinx (XLNX), Qorvo (QRVO) and Maxim Integrated Products (MXIM) turned in some of the semiconductor sector’s worst performances.

Computer hardware and networking stocks also saw considerable weakness, contributing to the steep drop by the tech-heavy Nasdaq.

While steel and retail stocks also saw notable weakness on the day, tobacco and utilities stocks bucked the downtrend shown by the broader markets.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan’s Nikkei 225 Index slid by 0.8 percent, while Hong Kong’s Hang Seng Index dipped by 0.2 percent.

The major European markets also showed notable moves to the downside on the day. While the U.K.’s FTSE 100 Index tumbled by 1.4 percent, the German DAX Index and the French CAC 40 Index slumped by 1.1 percent and 1 percent, respectively.

In the bond, treasuries extended the downward move seen over the two previous sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.8 basis points to a seven-year closing high of 3.225 percent.

Looking Ahead

The economic calendar for next week starts off relatively quiet due to the Columbus Day holiday, although reports on producer and consumer prices are likely to attract attention along with remarks by several Federal Reserve officials.

On the earnings front, financial giants Citigroup (C), J.P. Morgan Chase (JPM), and Wells Fargo (WFC) are due to report their quarterly results before the start of trading next Friday.

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