Broad Weakness Leads To Notably Lower Close On Wall Street - U.S. Commentary

(RTTNews) - After moving mostly higher over the course of the previous week, stocks showed a notable move back to the downside during trading on Monday. With the drop on the day, the Dow pulled back well off last Friday's record closing high.

The major averages ended the day firmly in negative territory. The Dow fell 107.06 points or 0.6 percent to 17,172.68, the Nasdaq tumbled by 52.10 points or 1.1 percent to 4,527.69 and the S&P 500 slid 16.11 points or 0.8 percent to 1,994.29.

The weakness on Wall Street was partly due to profit taking following the recent strength in the markets, which lifted both the Dow and the S&P 500 to new record highs last week.

Negative sentiment was also generated by comments from Chinese Finance Minister Lou Jiwei indicating that China won't dramatically alter its economic policy despite signs of downward pressure on growth.

Peter Boockvar, managing director at the Lindsey Group, said, "With the current slowdown in economic activity in China mostly due to the air coming out of the property market bubble, many assume Chinese officials will just provide another round of massive stimulus."

"Instead, however, we've gotten only small doses and it looks like that will be the most we'll see as China realizes that it must wean itself off the vicious cycle of stimulus, slowdown, stimulus, slowdown, etc.," he added.

Additionally, the National Association of Realtors released a report showing an unexpected drop in U.S. existing home sales in the month of August.

NAR said existing home sales fell 1.8 percent to a seasonally adjusted annual rate of 5.05 million in August from a downwardly revised 5.14 million in July.

The drop came as a surprise to economists, who had expected existing home sales to climb to an annual rate of 5.18 million.

Among individual stocks, shares of Alibaba (BABA) gave back some ground after the Chinese e-commerce giant surged up by 38.1 percent in its first day of trading last Friday.

Online media giant Yahoo (YHOO) also came under pressure on the day following a ratings downgrade by Bank of America.

On the other hand, shares of Sigma-Aldrich (SIAL) moved sharply higher after the chemical firm agreed to be acquired by German drug company Merck for $17 billion.

Sector News

While most of the major sectors moved to the downside, gold stocks posted particularly steep losses on the day. The NYSE Arca Gold Bugs Index plunged by 2.9 percent to its lowest closing level in over eight months.

NovaGold (NG) and Coeur Mining (CDE) turned in two of the gold sector's worst performances, tumbling by 9.6 percent and 8.8 percent, respectively.

Reflecting concerns about the outlook for demand from China, steel stocks also showed a substantial move to the downside. The NYSE Arca Steel Index plummeted by 2.7 percent to a nearly three-month closing low.

Significant weakness was also visible among airline stocks, as reflected by the 2.3 percent loss posted by the NYSE Arca Airline Index. Spirit Airlines (SAVE) and JetBlue (JBLU) posted notable losses.

Housing, internet, networking, and oil service stocks also came under considerable selling pressure, reflecting the broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday. Japan's Nikkei 225 Index slumped by 0.7 percent, while Hong Kong's Hang Seng Index tumbled by 1.4 percent.

The major European markets also moved to the downside on the day. While the U.K.'s FTSE 100 Index fell by 0.9 percent, the German DAX Index and the French CAC 40 Index dropped by 0.5 percent and 0.4 percent, respectively.

In the bond market, treasuries moved modestly higher, climbing further off their recent lows. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, dipped by 2.1 basis points to 2.566 percent.

Looking Ahead

Trading activity on Tuesday may be somewhat subdued amid a relatively quiet day on the U.S. economic front.