Drop In Oil Prices Continues To Weigh On Wall Street - U.S. Commentary

(RTTNews) - After ending the previous session moderately higher, stocks have shown a substantial move back to the downside during trading on Friday. With the pullback on the day, the major averages have fallen to their lowest levels in almost a month.

Currently, the major averages remain stuck firmly in negative territory. The Dow is down 227.99 points or 1.3 percent at 17,346.76, the Nasdaq is down 75.88 points or 1.5 percent at 4,969.29 and the S&P 500 is down 27.31 points or 1.3 percent at 2,024.92.

The sell-off on Wall Street is largely due to a continued decrease by the price of crude oil, which has fallen sharply amid ongoing concerns about global oversupply.

Crude oil for January delivery is currently down $0.98 at $35.78 a barrel, just off its nearly seven-year intraday low of $35.73 a barrel.

The continued decrease by the price of crude oil comes after the International Energy Agency warned the global supply glut would continue into the New Year.

Concerns about the outlook for monetary policy are also weighing on stocks, as the Federal Reserve is due to hold its highly anticipated meeting next week.

While the Fed is widely expected to announce an increase in interest rates, traders will be looking to the accompanying statement for clues about the outlook for further rate hikes.

On the economic front, the Commerce Department released a report before the start of trading showing that retail sales rose by slightly less than expected in the month of November.

The report said retail sales rose by 0.2 percent in November after inching up by 0.1 percent in October. Economists had expected sales to increase by about 0.3 percent.

However, core retail sales, which exclude autos, gasoline, and building materials, increased by 0.6 percent in November after rising by 0.2 percent in October.

Steve Murphy, U.S. economist at Capital Economics, said, "All things considered, the November retail sales report reaffirms our view that real consumption will be around 2.5% annualized in the fourth quarter."

"More importantly, it dismisses any concerns of a potential slump in household spending after a couple of weaker months in August and September," he added. "Not that there is much doubt any more, but this supports the case for a rate hike by the Fed next week."

A separate report from the Labor Department showed an unexpected rebound in producer prices in November, while the University of Michigan reported a modest improvement in consumer sentiment in December.

Sector News

The continued decrease by the price of crude oil is contributing to substantial weakness among energy stocks, which have pulled back sharply after regaining some ground over the past couple sessions.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index has plunged by 3.9 percent, while the NYSE Arca Oil & Gas Index and the Philadelphia Oil Service Index are down by 3.2 percent and 2.7 percent, respectively.

Considerable weakness is also visible among brokerage stocks, as reflected by the 2.4 percent loss being posted by the NYSE Arca Broker/Dealer Index. The index has fallen to its lowest intraday level in over a month.

Steel, airline, chemical, and computer hardware stocks are also seeing significant weakness on the day, reflecting broad based selling pressure on Wall Street.

Meanwhile, gold stocks are among the few groups bucking the downtrend, resulting in a 1.8 percent gain the NYSE Arca Gold Bugs Index. The strength in the sector comes as gold for February delivery is climbing $3.20 to $1,075.20 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Friday. Hong Kong's Hang Seng Index slumped by 1.1 percent, while China's Shanghai Composite Index fell by 0.6 percent. However, Japan's Nikkei 225 Index bucked the downtrend with a 1 percent advance.

The major European markets also saw significant weakness on the day. While the French CAC 40 Index tumbled by 1.8 percent, the U.K.'s FTSE 100 Index and the German DAX Index plunged by 2.2 percent and 2.4 percent, respectively.

In the bond market, treasuries have moved notably higher amid the sell-off on Wall Street. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 7 basis points at 2.169 percent.