Steep Drop In Oil Prices Leads To Sell-Off On Wall Street - U.S. Commentary

(RTTNews) - With another sharp drop by the price of oil weighing on the markets, stocks moved sharply lower over the course of the trading day on Friday. The losses on the day dragged the major averages down to their lowest closing levels in a month.

The major averages saw further downside going into the close of trading, finishing the day at their lows for the session. The Dow plummeted 315.51 points or 1.8 percent to 17,280.83, the Nasdaq tumbled 54.57 points or 1.2 percent to 4,653.60 and the S&P 500 plunged 33.00 points or 1.6 percent to 2,002.33.

For the week, the major averages all posted steep losses. The Nasdaq slumped by 2.7 percent, while the Dow and the S&P 500 dove 3.8 percent and 3.5 percent, respectively.

The sell-off on Wall Street was primarily attributed to the continued decrease by the price of crude oil, with crude for January delivery tumbling $2.14 to a new five-year low of $57.81 a barrel.

Concerns about oil demand led to the continued decline after the International Energy Agency cut its outlook for 2015 global oil demand growth by 230 000 barrels per day to 0.9 million barrels per day.

The recent sell-off by the price of crude oil has led to some worries about how the drop in prices will affect the U.S. economy as a whole.

While lower gas prices may boost consumer spending in other areas, the drop in prices will hurt the oil and gas industry, which had been a major source of growth.

Negative sentiment was also generated by disappointing Chinese data, which added to recent worries about the outlook for the global economy.

A report released by the Chinese National Bureau of Statistics showed that industrial production rose 7.2 percent year-over-year in November, slower than the 7.7 percent growth in October and the 7.5 percent growth expected by economists.

Meanwhile, traders largely shrugged off a report from Thomson Reuters and the University of Michigan showing a bigger than expected jump in consumer sentiment.

The report said the preliminary reading on the consumer sentiment index for December came in at 93.8 compared to the final November reading of 88.8. Economists had expected the index to show a more modest increase to 89.5.

With the much bigger than expected increase, the consumer sentiment index reached its highest level since January of 2007.

Sector News

Most of the major sectors showed significant moves to the downside on the day, reflecting broad based weakness on Wall Street.

Steel stocks posted particularly steep losses, dragging the NYSE Arca Steel Index down by 3.3 percent. With the drop, the index fell to its worst closing level in over five years.

The weakness among steel stocks partly reflected concerns about the outlook for demand following the disappointing Chinese production data.

Considerable weakness was also visible among chemical stocks, as reflected by the 2.9 percent loss posted by the Dow Jones Chemicals Index. Dow Chemical (DOW) and Eastman (EMN) turned in two of the sector's worst performances.

Defense stocks also showed a substantial move to the downside on the day, dragging the Philadelphia Defense Sector Index down by 2.9 percent to its lowest closing level in over a month.

Esterline Technologies (ESL) helped to lead the defense sector lower, with the aerospace and defense supplier tumbling by 11.8 percent after reporting disappointing fourth quarter results.

Brokerage, telecom, computer hardware, and energy stocks also saw notable weakness, reflecting the broad based selling pressure.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Friday. Japan's Nikkei 225 Index advanced by 0.7 percent, while Hong Kong's Hang Seng Index dipped by 0.3 percent.

Meanwhile, the major European markets all saw substantial weakness on the day. While the U.K.'s FTSE 100 Index plunged by 2.5 percent, the German DAX Index and the French CAC 40 Index plummeted by 2.7 percent and 2.8 percent, respectively.

In the bond market, treasuries showed a strong move back to the upside after ending the previous session slightly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dropped 7.5 basis points to 2.103 percent.

Looking Ahead

The Federal Reserve will take center stage next week, as the central bank is scheduled to announce its latest monetary policy decision on Wednesday.

While the Fed is widely expected to leave interest rates unchanged, traders will be paying close attention to whether it reiterates its intention to keep rates at low levels for a "considerable time."

Ahead of the Fed announcement, trading could be impacted by the release of reports on industrial production, housing starts, and consumer prices.