Continued Drop In Oil Prices Leads To Weakness On Wall Street - U.S. Commentary

(RTTNews) - After coming under significant selling pressure in early trading on Monday, stocks remained stuck in the red throughout the session. The losses on the day came on the heels of the substantial volatility that was seen last week.

The major averages moved roughly sideways in afternoon trading before closing firmly in negative territory. The Dow fell 96.53 points or 0.5 percent to 17,737.37, the Nasdaq slid 39.36 points or 0.8 percent to 4,664.71 and the S&P 500 dropped 16.55 points or 0.8 percent to 2,028.26.

The weakness on Wall Street came amid another sharp drop by the price of crude oil, which has fallen to its lowest levels in almost six years.

Crude for February delivery tumbled $2.29 to $46.07 a barrel after plunging $4.33 or 8.2 percent to $48.36 a barrel last week.

The continued drop in oil prices reflects concerns about oversupply, which led analysts at Goldman Sachs to cut their three-month forecasts for the U.S. West Texas Intermediate contract to $41 from $70 a barrel.

Traders also expressed some trepidation ahead of the start of earnings reporting season, with aluminum giant Alcoa (AA) set to unofficially kick off the season with the release of its fourth quarter results after the close of today's trading.

Financial giants JP Morgan (JPM), Wells Fargo (WFC), Bank of America (BAC), Citigroup (C) and Goldman Sachs (GS) are among the other companies due to report their quarterly results later in the week.

Among individual stocks, shares of Tiffany (TIF) moved sharply lower after the luxury goods retailer cut its full-year earnings forecast following a disappointing holiday season.

Casino operator Caesars Entertainment (CZR) also came under pressure on news that the company's bondholders have filed papers to force its operating unit into involuntary Chapter 11 bankruptcy.

On the other hand, shares of Foundation Medicine (FMI) spiked higher after Roche Holding said it will acquire a majority stake in the company.

Sector News

Oil service stocks saw substantial weakness on the day amid the drop by the price of crude oil. Reflecting the weakness in the sector, the Philadelphia Oil Service Index tumbled by 4.4 percent to its lowest closing level in well over two years.

Within the oil service sector, Core Laboratories (CLB) and Oil States (OIS) posted particularly steep losses, falling by 7.3 percent and 7.2 percent, respectively.

Considerable weakness was also visible among electronic storage stocks, as reflected by the 3.3 percent loss posted by the NYSE Arca Disk Drive Index. SanDisk (SNDK) helped to lead the sector lower, tumbling by 13.9 percent.

Steel, oil producer, natural gas, and semiconductor stocks also saw significant weakness on the day, moving lower along with most of the other major sectors.

On the other hand, gold stocks showed a strong move to the upside, driving the NYSE Arca Gold Bugs Index up by 4.3 percent. The strength in the sector came as gold for February climbed $16.70 to $1,232.80 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Hong Kong's Hang Seng Index rose by 0.5 percent, while China's Shanghai Composite Index slumped by 1.7 percent.

Meanwhile, the major European markets saw some strength on the day. While the U.K.'s FTSE 100 Index closed only slightly above the unchanged line, the French CAC 40 Index and the German DAX Index jumped by 1.2 percent and 1.4 percent, respectively.

In the bond market, treasuries moved notably higher amid the sharp drop by the price of crude oil. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5.9 basis points to 1.912 percent.

Looking Ahead

Amid a relatively quiet day on the U.S. economic front, trading on Tuesday may be impacted by reaction to Alcoa's quarterly results.