Stocks Move Back To The Downside Amid Fed, Ukraine Worries - U.S. Commentary

(RTTNews) - Stocks moved notably lower over the course of the trading day on Tuesday, offsetting the rebound seen in the previous session. Worries about the outlook for monetary policy weighed on the markets along with renewed concerns about the situation in Ukraine.

The major averages closed firmly in the red, with the Dow and the S&P 500 setting new two-month closing lows. The Dow tumbled 139.81 points or 0.8 percent to 16,429.47, the Nasdaq slid 31.05 points or 0.7 percent to 4,352.84 and the S&P 500 dropped 18.78 points or 1 percent to 1,920.21.

Early selling pressure was generated by the release of some upbeat U.S. economic data, including a report from the Institute for Supply Management showing that service sector activity expanded at a notably faster rate in July.

The ISM said its non-manufacturing index climbed to 58.7 in July from 56.0 in June, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to edge up to a reading of 56.5.

With the bigger than expected increase, the ISM said the non-manufacturing index reached its highest reading since the revised survey's inception in January of 2008.

A separate report from the Commerce Department showed that factory orders rebounded by more than expected in the month of June.

The data points to an upbeat economic outlook but also added to recent speculation that the Federal Reserve may raise interest rates sooner than anticipated.

Peter Boockvar, chief market analyst at the Lindsey Group, said, "Encouragingly, the Q2 economic rebound after the Q1 contraction is continuing at a good pace in Q3."

"While of course something to root for, it again brings the policy of the Federal Reserve front and center and that is why good economic news is not translating into better stock market performance," he added.

Stocks accelerated to the downside in afternoon trading amid remarks by Polish Foreign Minister Radoslaw Sikorski indicating that Russia troops are poised to pressure or invade eastern Ukraine.

Amid reports of a buildup of Russian troops on the border, Sikorski told Polish news channel TVN24 Russian President Vladimir Putin could order an invasion if Ukrainian forces continue to have success in their fight against pro-Russian separatists.

Sikorski's comments came on the heels of news that Putin has ordered his government to draft a response to U.S. and European sanctions.

Negative sentiment was also generated by news that Target (TGT) lowered its second quarter earnings guidance, with the retail giant falling by 4.4 percent on the day.

Target attributed the lower guidance to expenses related to last year's data breach as well as promotional markdowns at its U.S. stores and softer than expected sales in Canada.

Sector News

After helping to lead the markets higher in the previous session, energy stocks showed a substantial move back to the downside on the day. The NYSE Arca Oil & Gas Index and the Philadelphia Oil Service Index tumbled by 1.8 percent and 1.6 percent, respectively.

The pullback by energy stocks came amid a notable decrease by the price of crude oil, with crude for September delivery falling $0.91 to a six-month low of $97.38 a barrel.

Despite the drop by the price of crude oil, airline stocks also saw significant weakness amid the geopolitical concerns. The NYSE Arca Airline Index fell by 1.5 percent to a two-month closing low.

Considerable weakness was also visible among utilities stocks, as reflected by the 1.2 percent loss posted by the Dow Jones Utilities Average. With the loss, the average extended a recent downward move and hit its lowest closing level in over two months.

Electronic storage, steel, and semiconductor stocks also saw notable weakness on the day, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Tuesday. Japan's Nikkei 225 Index tumbled by 1 percent, while Hong Kong's Hang Seng Index crept up by 0.2 percent.

Meanwhile, the major European markets all moved to the upside on the day. While the U.K.'s FTSE 100 Index inched up by 0.1 percent, the German DAX Index and the French CAC 40 Index both rose by 0.4 percent.

In the bond market, treasuries turned higher over the course of the session after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by nearly a basis point to 2.483 percent after reaching a high of 2.525 percent.

Looking Ahead

Developments overseas are likely to remain in focus on Wednesday, although traders are also likely to keep an eye on a report on U.S. trade in the month of June.

Trading could also be impacted by reaction to earnings news from Disney (DIS), with the entertainment giant releasing its quarterly results after the close of today's trading.