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

(RTTNews) - After showing a lack of direction for much of morning trading on Monday, stocks showed a notable move to the downside in the afternoon. The major averages slid firmly into negative territory, with the Dow and the S&P 500 pulling back well off last Friday's record highs.

While the major averages climbed off their worst levels of the day, they remained stuck in the red. The Dow fell 106.31 points or 0.6 percent to 17,851.48, the Nasdaq slid 40.06 points or 0.8 percent to 4,740.69 and the S&P 500 dropped 15.06 points or 0.7 percent to 2,060.31.

The weakness that emerged on Wall Street was partly due to a sharp drop by the price of crude oil, which weighed heavily on energy stocks.

Extending a recent sell-off, crude for January delivery plunged $2.79 to $63.05 a barrel, its lowest closing level since July of 2009.

Reflecting the weakness in the energy sector, the NYSE Arca Oil & Gas Index, the Philadelphia Oil Service Index, and the NYSE Arca Natural Gas Index all plummeted by more than 4 percent on the day.

Substantial weakness was also visible among railroad stocks, as reflected by the 3.1 percent loss posted the Dow Jones Railroads Index.

The railroad index has pulled back sharply in recent sessions amid concerns about the impact the drop in the price of oil will have on the industry.

Steel, computer hardware, internet, and chemical stocks also saw considerable weakness, moving lower along with most of the other major sectors.

On the other hand, biotechnology stocks managed to buck the downtrend and hold on to notable gains. The NYSE Arca Biotechnology Index jumped 2.1 percent to a record closing high.

Within the biotech sector, Cubist Pharmaceuticals (CBST) posted a standout gain after agreeing to be acquired by Merck (MRK) in a deal valued at $9.5 billion.

Earlier in the session, some selling pressure was generated by renewed worries about the global economy following the release of disappointing economic data from overseas.

A revised report released by Japan's Cabinet Office showed that Japanese GDP contracted by 1.9 percent year-over-year in the third quarter, faster than the 1.6 percent drop initially estimated and the 0.5 percent decline expected by economists.

Disappointing Chinese trade data also generated some negative sentiment, with a report showing notably slower export growth and an unexpected drop in imports.

The focus on overseas data came amid a lack of major U.S. economic data on the day, although some key reports are due to be released later in the week.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Monday. Japan's Nikkei 225 Index and Hong Kong's Hang Seng Index inched up by 0.1 percent and 0.2, respectively, while South Korea's KOSPI Index dropped by 0.4 percent.

Meanwhile, the major European markets all moved to the downside on the day. While the German DAX Index slid by 0.7 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index tumbled by 1 percent and 1.1 percent, respectively.

In the bond market, treasuries moved steadily higher over the course the session after ending last Friday's trading sharply lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 5 basis points to 2.257 percent.

Looking Ahead

While the Commerce Department is scheduled to release its monthly report on wholesale trade on Tuesday, the data does not typically attract much attention.

On the earnings front, H&R Block (HRB), Diamond Foods (DMND), and Pep Boys (PBY) are releasing their quarterly results after the close of today's trading.