Multiple Negative Catalysts Lead To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - Stocks saw substantial weakness during trading on Friday, more than offsetting the strong gains posted in the previous session. With the sell-off on the day, the Dow and the S&P 500 fell to nearly four-month closing lows, while the Nasdaq hit its lowest closing level in over a year.

The major averages climbed off their worst levels of the day but still closed firmly in negative territory. The Dow plunged 390.97 points or 2.4 percent to 15,988.08, the Nasdaq plummeted 126.59 points or 2.7 percent to 4,488.42 and the S&P 500 tumbled 41.55 points or 2.2 percent to 1,880.29.

For the week, the Dow and the S&P 500 both slumped by 2.2 percent, while the tech-heavy Nasdaq dove by 3.3 percent.

Multiple negative catalysts contributed to the weakness on Wall Street, including a resumption of the recent sell-off in China.

China's Shanghai Composite Index plunged by 3.6 percent overnight amid reports some Chinese banks are no longer accepting stocks as collateral for loans.

A sharp pullback by the price of crude oil also weighed on the markets, with the commodity closing below $30 a barrel for the first time since late 2003.

Crude oil for February delivery tumbled $1.78 to $29.42 a barrel after climbing $0.72 to $31.20 a barrel in the previous session.

Negative sentiment was also generated by a batch of largely disappointing U.S. economic data, including a Commerce Department report showing a modest drop in retail sales in December.

The report said retail sales edged down by 0.1 percent in December following an upwardly revised 0.4 percent increase in November. Economists had expected sales to come in unchanged.

Excluding flat auto sales, retail sales still dipped by 0.1 percent in December after climbing by 0.3 percent in November. Ex-auto sales had been expected to rise by 0.2 percent.

A separate report from the New York Federal Reserve showed a significant contraction in regional manufacturing activity in January.

The New York Fed said its general business conditions index fell thirteen points to a negative 19.4 in January, with a negative reading indicating a contraction.

The Federal Reserve also released a report showing a bigger than expected drop in industrial production in the month of December.

The report said industrial production dropped by 0.4 percent in December after slumping by a revised 0.9 percent in November. Economists had expected production to dip by 0.2 percent

Meanwhile, traders largely shrugged off a report from the University of Michigan showing a continued improvement in consumer sentiment in the month of January.

Sector News

Most of the major sectors came under considerable selling pressure on the day, reflecting broad based weakness on Wall Street.

Steel stocks posted particularly steep losses, dragging the NYSE Arca Steel Index down by 4.5 percent to a new record closing low. AK Steel (AKS), Allegheny Technologies (ATI) and ArcelorMittal (MT) turned in some of the sector's worst performances.

Significant weakness was also visible among semiconductor stocks, as reflected by the 4.5 percent loss posted by the Philadelphia Semiconductor Index. The index fell to its lowest closing level in well over four months.

Industry giant Intel (INTC) helped lead the semiconductor sector lower despite reporting better than expected fourth quarter results. Traders reacted negatively to softer than expected data center revenues.

Energy stocks also saw substantial weakness amid the drop by the price of crude oil, moving notably lower along with telecom, internet, software, and banking stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Friday. Japan's Nikkei 225 Index fell by 0.5 percent, while Hong Kong's Hang Seng Index slumped by 1.5 percent.

The major European markets also saw significant weakness on the day. While the U.K.'s FTSE 100 Index tumbled by 1.9 percent, the French CAC 40 Index and the German DAX Index plunged by 2.4 percent and 2.5 percent, respectively.

In the bond market, treasuries showed a strong move to the upside amid the sell-off on Wall Street. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 6.5 basis points to a two-month closing low of 2.033 percent.

Looking Ahead

Following the long holiday weekend, the price of crude oil and developments in China are likely to remain in focus next week.

Earnings news is also likely to attract attention, with Bank of America (BAC), Morgan Stanley (MS), IBM (IBM), Goldman Sachs (GS), American Express (AXP), Verizon (VZ), and General Electric (GE) among the slew of companies due to report their results.

Traders are also likely to keep an eye on the latest U.S. economic reports on consumer prices, housing starts, and existing home sales.