Disappointing Chinese Data Drags Stocks Sharply Lower - U.S. Commentary

(RTTNews) - After showing a lack of direction during the past few sessions, stocks moved sharply lower over the course of the trading day on Thursday. A disappointing reading on Chinese manufacturing activity contributed to the selling pressure.

The major averages climbed well off their worst levels in afternoon trading but still closed firmly in the red. The Dow tumbled 175.99 points or 1.1 percent to 16,197.35, the Nasdaq slid 24.13 points or 0.6 percent to 4,218.87 and the S&P 500 dropped 16.40 points or 0.9 percent to 1,828.46.

The weakness on Wall Street was partly due to concerns about the outlook for the global economy following the release of a report showing a contraction in Chinese manufacturing activity.

Results of a preliminary survey by Markit and HSBC showed that their index of Chinese manufacturing activity fell to 49.6 in January from 50.5 in December, with a reading below 50 indicating a contraction. Economists had expected a more modest drop to 50.3.

A report released by the National Association of Realtors showing U.S. existing home sales below estimates in December also generated some negative sentiment.

NAR said existing home sales climbed 1.0 percent to an annual rate of 4.87 million in December after tumbling 5.9 percent to a downwardly revised 4.82 million in November. Economists had expected existing home sales at a rate of 4.93 million.

Meanwhile, the Labor Department released a report before the start of trading showing that initial jobless claims increased by less than expected in the week ended January 18th.

The report said initial jobless claims edged up to 326,000, an increase of 1,000 from the previous week's revised figure of 325,000. Economists had expected claims to climb to 330,000 from the 326,000 originally reported for the previous week.

A separate report from the Conference Board showed that its index of leading economic indicators inched up by 0.1 percent in December following an upwardly revised 1.0 percent increase in November.

Among individual stocks, shares of American Eagle (AEO) moved sharply lower after the apparel retailer said its CEO Robert Hanson is leaving the company after just two years on the job. Executive Chairman Jay Schottenstein was appointed interim CEO.

Nokia (NOK) also came under pressure after reporting a 22 percent decrease in sales at its network equipment division in the fourth quarter. The company previously agreed to sell its mobile phones business to Microsoft (MSFT).

On the other hand, shares of Netflix (NFLX) moved sharply higher after the Internet video service provider reported better than expected fourth quarter earnings amid strong subscriber growth.

Sector News

Airline stocks showed a substantial move to the downside on the day, dragging the NYSE Arca Airline Index down by 1.9 percent. The steep loss by the index came after it ended the previous session at its best closing level in over eleven years.

Southwest Airlines (LUV) turned in one of the airline sector's worst performances despite reporting better than expected fourth quarter results

Considerable weakness was also visible among oil service stocks, as reflected by the 1.7 percent loss posted by the Philadelphia Oil Service Index. Diamond Offshore (DO) and Tidewater (TDW) posted steep losses.

Banking stocks also saw significant weakness, resulting in a 1.6 percent loss by the Dow Jones Banks Index. Chemical, steel, brokerage, and trucking stocks also came under pressure.

Meanwhile, gold stocks moved sharply higher on the day, benefiting from a notable increase by the price of the precious metal. With gold for February delivery jumping $23.70 to $1,262.30 an ounce, the NYSE Arca Gold Bugs Index surged up by 2.7 percent.

Railroad stocks also bucked the downtrend by the broader markets, driving the Dow Jones Railroads Index up by 1.8 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan's Nikkei 225 Index slumped by 0.8 percent, while Hong Kong's Hang Seng Index tumbled by 1.5 percent.

The major European markets also came under pressure on the day. While the French CAC 40 Index dropped by 1 percent, the German DAX Index and the U.K.'s FTSE 100 Index slid by 0.9 percent and 0.8 percent, respectively.

In the bond market, treasuries moved sharply higher after ending the previous session in the red. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 8.7 basis points to 2.773 percent.

Looking Ahead

With the economic calendar quieting back down on Friday, the latest batch of earnings news is likely to be in focus once again.

Microsoft (MSFT) and Starbucks (SBUX) are releasing their quarterly results after the close of today's trading, while Honeywell (HON) and Procter & Gamble (PG) are among the companies due to report their results before the start of trading on Friday.