Draghi, Yellen Remarks Lead To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - Reflecting concerns about the outlook for monetary policy, stocks moved sharply lower over the course of the trading session on Thursday. The steep drop on the day extended the notable pullback seen in the previous session.

The major averages climbed off their worst levels going into the close but remained firmly in the red. The Dow tumbled 252.01 points or 1.4 percent to 17,477.67, the Nasdaq plunged 85.70 points or 1.7 percent to 5,037.53 and the S&P 500 plummeted 29.89 points or 1.4 percent to 2,049.62.

The sell-off on Wall Street was partly in reaction to remarks by European Central Bank president Mario Draghi, who offered less stimulus than the market consensus had expected.

While Draghi announced an extension of the ECB's asset purchase program until March of 2017, traders seemed disappointed the bank did not go further.

Draghi's press conference came after the ECB cut its deposit rate by a relatively modest 10 basis points to a new low of negative 0.3 percent earlier in the day.

"Santa Mario did not turn into the Grinch," said Carsten Brzeski, ING Germany's chief economist. "However, his long-awaited early Christmas afternoon left many market participants disappointed like small kids who receive less and smaller presents than expected on Christmas Eve."

Traders were also reacting to Federal Reserve Chair Janet Yellen's testimony before the congressional Joint Economic Committee.

Yellen's prepared remarks were essentially unchanged from a speech she delivered Wednesday, when she seemed to signify the central bank remains on track to raise interest rates later this month.

"On balance, economic and financial information received since our October meeting has been consistent with our expectation of continued improvement in the labor market," Yellen said.

She added, "And, as I have noted, continuing improvement in the labor market helps strengthen our confidence that inflation will move back to our 2 percent objective over the medium term."

However, Yellen acknowledged that the Fed will receive additional economic data before the meeting later this month, including the closely watched monthly jobs report due on Friday.

On the U.S. economic front, the Institute for Supply Management released a report this morning showing that the pace of growth in U.S. service sector activity slowed more than expected in November.

The ISM said its non-manufacturing index dropped to 55.9 in November from 59.1 in October. While a reading above 50 indicates continued growth in the service sector, economists had expected the index to show a more modest pullback to 58.2.

A separate report from the Commerce Department said factory orders rose slightly more than expected in October, while the Labor Department said jobless claims rose in line with estimates in the week ended November 28th.

Sector News

Most of the major sectors moved notably lower on the day, reflecting another session of broad based weakness on Wall Street.

Substantial weakness was visible among electronic storage stocks, as reflected by the 3.5 percent loss posted by the NYSE Arca Disk Drive Index. With the drop, the index fell to a six-year closing low.

Violin Memory (VMEM) helped lead the storage sector lower, plunging by 26.4 percent after reporting weaker than expected third quarter results.

Natural gas stocks also saw considerable weakness, resulting in a 2.9 percent drop by the NYSE Arca Natural Gas Index. The decrease pulled the index down to its lowest closing level in over five years.

Chesapeake Energy (CHK) posted a particularly steep loss after announcing a private offering of up to $1.5 billion of its new 8.00% Senior Secured Second Lien Notes due 2022.

Biotechnology, health care, railroad, and housing stocks also showed significant moves to the downside, while gold stocks bucked the downtrend amid an increase by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance on Thursday. China's Shanghai Composite Index surged up by 1.4 percent and Japan's Nikkei 225 closed slightly higher, while Hong Kong's Hang Seng Index fell by 0.3 percent.

Meanwhile, the major European markets moved sharply lower in reaction to Draghi's comments. While the U.K.'s FTSE 100 Index slumped by 2.3 percent, the German DAX Index and the French CAC 40 Index both plunged by 3.6 percent.

In the bond market, treasuries saw a steep drop on the day, extending the pullback seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 15.2 basis points to 2.33 percent.

Looking Ahead

The Labor Department's monthly jobs report is likely to be in focus on Friday due to its potential impact on the outlook for interest rates.

Economists expect the report to show an increase of about 190,000 jobs in November, while the unemployment rate is expected to hold at a seven-year low of 5.0 percent.

The jobs report is likely to overshadow the Commerce Department's report on international trade, which is expected to show the U.S. trade deficit narrowed to $40.6 billion in October.