Stocks Finish Volatile Trading Session Sharply Lower – U.S. Commentary

Stocks Finish Volatile Trading Session Sharply Lower – U.S. Commentary

Stocks saw substantial volatility over the course of the trading session on Thursday before ending the day sharply lower. The major averages finished the day firmly in the red, adding to the steep losses posted in the previous session.

The major averages closed firmly in negative territory but off their lows of the session. The Dow plunged 545.91 points or 2.1 percent to 25,052.83, the Nasdaq slumped 92.99 points or 1.3 percent to 7,329.06 and the S&P 500 plummeted 57.31 points or 2.1 percent to 2,728.37.

With the continued weakness, the Nasdaq fell to its lowest closing level in five months, while the S&P 500 and the Dow hit three-month and two-month closing lows, respectively.

The substantially lower close by the major averages came even though strength in the bond market contributed to a significant drop by treasury yields.

Even with the decrease by yields, traders remained concerned about the outlook for the interest rates as well as the escalating trade war between the U.S. and China.

Treasuries benefited from the release of a report from the Labor Department showing consumer prices rose by less than expected in the month of September.

The Labor Department said its consumer price index inched up by 0.1 percent in September after rising by 0.2 percent in August. Economists had expected prices to increase by another 0.2 percent.

Excluding food and energy prices, core consumer prices also crept up by 0.1 percent in September, matching the uptick seen in the previous month. Core prices had been expected to rise by 0.2 percent.

The report also said the annual rate of consumer price growth slowed to 2.3 percent in September from 2.7 percent in August, while the annual rate of core consumer price growth was unchanged at 2.2 percent.

“Overall, the September figures confirm that core inflation has lost a little momentum in recent months, and the stronger dollar will put downward pressure on goods prices over the coming year or so,” said Michael Pearce, Senior U.S. Economist at Capital Economics.

He added, “But with activity growth still strong and underlying inflation in the services sector still trending higher, we suspect the Fed will continue to raise interest rates over the coming quarters.”

A separate report released by the Labor Department unexpectedly showed a modest increase in first-time claims for U.S. unemployment benefits in the week ended October 6th.

The report said initial jobless claims rose to 214,000, an increase of 7,000 from the previous week’s unrevised level of 207,000. Economists had expected jobless claims to edge down to 206,000.

Sector News

Energy stocks turned in some of the market’s worst performances on the day, extending the sell-off seen in the previous session.

The continued weakness among energy stocks came as the price of crude oil for November delivery plunged $2.20 to $70.97 a barrel following the release of a report showing a much bigger than expected weekly increase in crude oil inventories.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index plummeted by 3.3 percent, the NYSE Arca Oil Index tumbled by 2.9 percent and the Philadelphia Oil Service Index slumped by 2.4 percent.

Significant weakness also emerged among banking stocks, as reflected by the 2.8 percent drop by the KBW Bank Index. The index fell to its lowest closing level in over ten months.

Telecom, commercial real estate, housing, and healthcare stocks also saw considerable weakness, while gold stocks moved sharply higher along with the price of the precious metal.

With gold for December soaring $34.20 to $1,227.60 an ounce, the NYSE Arca Gold Bugs Index spiked by 7.4 percent to a two-month closing high.

Other Markets

In overseas trading, stock markets across the Asia-Pacific moved sharply lower on Thursday following the overnight sell-off on Wall Street. Japan’s Nikkei 225 Index plummeted by 3.9 percent, while Hong Kong’s Hang Seng Index plunged by 3.5 percent.

The major European markets also showed substantial moves to the downside on the day. While the German DAX Index slumped by 1.5 percent, the French CAC 40 Index and the U.K.’s FTSE 100 Index both dove by 1.9 percent.

In the bond market, treasuries moved significantly higher over the course of the trading session. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled by 9.2 basis points to 3.133 percent.

Looking Ahead

Earnings news may move into the spotlight on Friday, as financial giants Citigroup (C), JPMorgan Chase (JPM), and Wells Fargo (WFC) are due to report their quarterly results before the start of trading.

Traders are also likely to keep an eye on reports on import and export prices in September and consumer sentiment in October.

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