Geopolitical Worries Lead To Steep Drop On Wall Street - U.S. Commentary

(RTTNews) - After ending the previous session roughly flat, stocks saw substantial weakness during trading on Wednesday. With the sharp drop on the day, the major averages added to steep losses posted on Monday, falling to their lowest closing levels in three months.

The major averages climbed off their worst levels of the day going into the close but remained firmly in the red. The Dow plunged 252.15 points or 1.5 percent to 16,906.51, the Nasdaq slumped 55.67 points or 1.1 percent to 4,835.76 and the S&P 500 dove 26.45 points or 1.3 percent to 1,990.26.

The sell-off on Wall Street came after North Korea claimed it successfully performed the republic's first hydrogen bomb test.

North Korean state television said the test of the miniaturized device shows the communist nation has joined the ranks of advanced nuclear states.

The news added to recent geopolitical concerns amid rising tensions between Saudi Arabia and Iran and the ongoing fight against the terrorist group known as ISIS.

Traders largely shrugged off comments from White House Press Secretary Josh Earnest indicating that initial data was "not consistent with North Korean claims of a successful hydrogen bomb test."

On the U.S. economic front, payroll processor ADP released a report showing stronger than expected private sector job growth in December.

ADP said private sector employment jumped by 257,000 jobs in December after climbing by a revised 211,000 jobs in November. Economists had expected employment to increase by about 190,000 jobs.

The bigger than expected increase in private sector employment reflected the strongest job growth since employment surged up by 275,000 jobs in December of 2014.

Meanwhile, the Institute for Supply Management released a separate report showing an unexpected drop by its index of service sector activity, with the decrease reflecting faster deliveries.

The ISM said its non-manufacturing index edged down to 55.3 in December from 55.9 in November, although a reading above 50 continues to point to growth in the service sector.

The modest decrease came as a surprise to economists, who had expected the non-manufacturing index to inch up to 56.2.

Separate reports released by the Commerce Department showed a modest pullback in factory orders and a narrower trade deficit in the month of November.

Late in the session, the Federal Reserve released the minutes of its latest monetary policy meeting, which showed that some members felt the decision to raise interest rates was a "close call."

The minutes also said some members expressed significant concern about still-low readings on actual inflation and the uncertainty and risks present in the inflation outlook.

Sector News

Energy stocks saw substantial weakness on the day, moving lower along with the price of crude oil. Crude for February delivery plunged $2 to a seven-year closing low of $33.97 a barrel after a report showed a sharp jump in U.S. gasoline inventories.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index plummeted by 6.3 percent, while the Philadelphia Oil Service Index tumbled by 4.9 percent and the NYSE Arca Oil & Gas Index slumped by 3.9 percent.

Significant weakness also emerged among railroad stocks, as reflected by the 4.1 percent loss posted by the Dow Jones Railroads Index. With the loss, the index fell to its lowest closing level in well over two years.

Most of the other major sectors also showed notable moves to the downside, with steel, semiconductor, brokerage, and chemical stocks seeing considerable weakness.

On the other hand, gold stocks were among the few groups to buck the downtrend, resulting in a 2.4 percent jump by the NYSE Arca Gold Bugs Index. The strength in the sector came as gold for February delivery climbed $13.50 to $1,091.90 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. Japan's Nikkei 225 Index and Hong Kong's Hang Seng Index both slumped by 1 percent, while China's Shanghai Composite Index bucked the downtrend with a 2.3 percent jump.

The major European markets showed significant moves to the downside on the day. While the French CAC 40 Index tumbled by 1.3 percent, the U.K.'s FTSE 100 Index and the German DAX Index dropped by 1 percent and 0.9 percent, respectively.

In the bond market, treasuries moved notably higher, benefiting from their appeal as a safe haven. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 7.1 basis points to 2.177 percent.

Looking Ahead

Trading on Thursday may be impacted by the weekly jobless claims report, although some traders are likely to be looking ahead to the more closely watched monthly jobs report due on Friday.