Global Economic Concerns Lead To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading day on Tuesday, adding to the modest losses posted in the previous session. The pullback more than offset last Friday's rally, with the major averages falling to their lowest closing levels in about two months.

The major averages saw further downside going into the close, ending the session at their worst levels of the day. The Dow plunged 272.52 points or 1.6 percent to 16,719.39, the Nasdaq tumbled 69.60 points or 1.6 percent to 4,385.20 and the S&P 500 plummeted 29.72 points or 1.5 percent to 1,935.10.

The sell-off on Wall Street was partly due to concerns about the global economic outlook following the release of more disappointing German economic data.

After reporting a steep drop in German factory orders on Monday, the German Federal Statistical Office released a report showing that German industrial output fell 4 percent in August compared to economist estimates for a 1.5 percent decrease.

The sharp pullback, which came on the heels of a 1.6 percent increase in July, pushed the annual growth rate back into negative territory for the first time since July of 2013.

Jonathan Loynes, chief European economist at Capital Economics, said the data "all but confirmed that German industry is back in recession and underlined the need for both the ECB and the German Government to give the euro-zone's biggest economy much more policy support."

Adding to the worries about the global economy, the International Monetary Fund downgraded its global growth forecast for both this year and next.

Describing the global economic recovery as weak and uneven, the IMF said it now expects global growth to average 3.3 percent in 2014, down from 3.4 percent in July. The group also lowered its growth forecast for 2015 to 3.8 percent from 4.0 percent.

Concerns about the outlook for U.S. monetary policy also weighed on the markets ahead of the release of the minutes of the latest Federal Reserve meeting on Wednesday.

With the Fed set to wrap up its asset purchase program later this month, traders know that it is likely only a matter of time before the central bank starts raising interest rates.

In a speech late in the trading day, New York Fed President William Dudley described forecasts for the first rate hike in mid-2015 as "reasonable."

Sector News

While most of the major sectors came under pressure on the day, gold stocks showed a substantial move to the downside. The NYSE Arca Gold Bugs Index plummeted by 3.5 percent to its lowest closing level in almost six years.

The pullback by gold stocks came despite a continued recovery by the price of the precious metal, as gold for December delivery climbed $5.10 to $1,212.40 an ounce.

Significant weakness was also visible among transportation stocks, as reflected by the 2.5 percent loss posted by the Dow Jones Transportation Average. The steep drop pulled the average down to a nearly two-month closing low.

Computer hardware stocks also moved sharply lower on the day, dragging the NYSE Arca Computer Hardware Index down by 2.2 percent. Hewlett-Packard (HPQ) helped to lead the sector lower after ending the previous session notably higher.

Networking, defense, brokerage, and pharmaceutical stocks also came under considerable selling pressure, reflecting broad based weakness on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Tuesday. Japan's Nikkei 225 Index fell by 0.7 percent, while Hong Kong's Hang Seng Index advanced by 0.5 percent.

Meanwhile, the major European markets all showed notable moves to the downside on the day. While the French CAC 40 Index plunged by 1.8 percent, the German DAX Index tumbled by 1.3 percent and the U.K.'s FTSE 100 Index slumped by 1 percent.

In the bond market, treasuries moved notably higher amid the global economic concerns. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 7.5 basis points to a one-month closing low of 2.35 percent.

Looking Ahead

Trading activity on Wednesday may be somewhat subdued in the lead-up to the release of the minutes of the latest Fed meeting, which is scheduled for the latter part of the trading day.