Fed-Inspired Uncertainty Leads To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading session on Friday, as traders continued to react to Thursday's Federal Reserve decision. The steep losses on the day came after the major averages ended the previous session mixed.

The major averages climbed off their worst levels going into the close but remained firmly in the red. The Dow plummeted 289.95 points or 1.7 percent to 16,384.79, the Nasdaq tumbled 66.72 points or 1.4 percent to 4,827.23 and the S&P 500 plunged 32.12 points or 1.6 percent to 1,958.08.

With the substantial pullback on the day, the major averages were roughly flat for the week. The Nasdaq inched up by 0.1 percent, while the Dow and the S&P 500 dipped by 0.3 percent and 0.2 percent, respectively.

The sell-off on Wall Street came as the Fed's decision to leave interest rates unchanged pointed to continued uncertainty for the markets for at least the next month.

The central bank is still widely expected to raise rates before the end of the year, suggesting an interest rate hike in October or December.

Paul Ashworth, Chief U.S. Economist at Capital Economics, said, "As far as our own forecasts are concerned, we now expect the fed funds rate to end this year at between 0.25% and 0.50% (i.e. just one 25bp hike)."

"But it is not implausible that some other 'risk' will emerge over the next few months (the debt ceiling is the most obvious candidate) that will convince the Fed to delay even longer," he added.

The Fed's comments indicating that recent global economic and financial developments may restrain economic activity somewhat also generated some negative sentiment.

On the U.S. economic front, the Conference Board released a report showing a slightly smaller than expected increase by its index of leading economic indicators.

The Conference Board said its leading economic index inched up by 0.1 percent in August, while revised data showed no change in July. Economists had expected the index to rise by 0.2 percent.

"The U.S. LEI suggests economic growth will remain moderate into the New Year, with little reason to expect growth to pick up substantially," said Ataman Ozyildirim, Director of Business Cycles and Growth Research at the Conference Board.

Sector News

Most of the major sectors moved to the downside on the day, although energy stocks showed a particularly steep drop. The weakness in the energy sector came as the price of crude oil plummeted $2.22 to $44.68 a barrel.

Within the energy sector, oil service stocks turned in some of the worst performances, dragging the Philadelphia Oil Service Index down by 4.3 percent.

Steel stocks also saw substantial weakness, as the comments from the Fed stirred concerns about the outlook for global demand. The NYSE Arca Steel Index plunged by 3.3 percent, with Olympic Steel (ZEUS) helping to lead the way lower.

Considerable weakness was also visible among computer hardware stocks, as reflected by the 3 percent loss posted by the NYSE Arca Computer Hardware Index. Western Digital (WDC) and Seagate Technology (STX) posted steep losses.

Financial, transportation, housing and biotechnology stocks also moved notably lower, reflecting broad based selling pressure on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Friday. Hong Kong's Hang Seng Index rose by 0.3 percent, and Australia's All Ordinaries Index climbed by 0.5 percent. However, Japan's Nikkei 225 Index bucked the uptrend and tumbled by 2 percent.

Meanwhile, the major European markets moved notably lower on the day. While the U.K.'s FTSE 100 Index slumped by 1.3 percent, the French CAC 40 Index plunged by 2.6 percent and the German DAX Index plummeted by 3.1 percent.

In the bond market, treasuries saw significant strength, extending the rally seen following the Fed decision. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 8.7 basis points to 2.13 percent.

Looking Ahead

Economic data may move back into the spotlight next week, with traders likely to keep an eye on reports on new and existing home sales and durable goods orders.

Trading could also be impacted by reaction to comments by Fed Chair Janet Yellen, who is due to deliver a speech on inflation dynamics and monetary policy Thursday evening.