Stocks Close Sharply Lower Amid Renewed Economic Worries - U.S. Commentary

(RTTNews) - Extending the downward trend seen over the past few sessions, stocks moved sharply lower during trading on Friday. With the drop on the day, the Dow pulled back toward the five-month lows set earlier this month.

The major averages moved roughly sideways going into the close, stuck firmly in negative territory. The Dow fell 163.39 points or 0.9 percent to 17,568.53, the Nasdaq tumbled 57.78 point or 1.1 percent to 5,088.63 and the S&P 500 slumped 22.50 points or 1.1 percent to 2,079.65.

With the steep losses on the day, the major averages moved substantially lower for the week. The Dow plummeted by 2.9 percent, while the Nasdaq and the S&P 500 plunged by 2.3 percent and 2.2 percent, respectively.

The continued weakness on Wall Street partly reflected a negative reaction to a report from the Commerce Department showing new home sales unexpectedly fell to their lowest level in seven months in June.

The report said new home sales tumbled 6.8 percent to an annual rate of 482,000 in June from the downwardly revised May rate of 517,000.

The steep drop came as a surprise to economists, who had expected new home sales to edge up to 550,000 from the 546,000 originally reported for the previous month.

With the unexpected decrease, new home sales fell to their lowest annual rate since hitting 446,000 last November.

Traders were also reacting to the results of a survey by Markit and Caixin showing that Chinese manufacturing activity fell to a fifteen-month low in July.

The index of Chinese manufacturing activity slid to 48.2 in July from 49.4 in June, while economists expected a reading of 49.7. A reading below 50 indicates a contraction in activity.

Julian Evans-Pritchard, China Economist at Capital Economics, said, "Today's PMI reading suggests that recent improvements in economic momentum may have been derailed this month by weaker foreign demand."

Selling pressure may also have been generated by trepidation ahead of the Federal Reserve's monetary policy meeting next week.

The Fed is widely expected to leave interest rates unchanged following the meeting, although traders are likely to keep a close eye on the accompanying statement.

Many analysts still expect the Fed to raise interest rates at its next meeting in September and will be closely scrutinizing the statement for any hints about the timing of the first rate hike.

Sector News

Biotechnology stocks showed a significant move to the downside on the day, dragging the NYSE Arca Biotechnology Index down by 3.5 percent. The index closed lower for the fifth straight day, pulling back further off the record closing high set last Friday.

Biogen (BIIB) helped to lead the biotech sector lower, plunging by 22.1 percent after reporting weaker than expected second quarter revenues and cutting its full-year guidance.

Reflecting concerns about the outlook for Chinese demand, steel stocks also saw substantial weakness. The NYSE Arca Steel Index tumbled by 3 percent to its lowest closing level in over six years.

Energy stocks also came under pressure amid a continued decrease by the price of crude oil. Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index and the Philadelphia Oil Service Index fell by 2.7 percent and 2.9 percent, respectively.

Airline, healthcare, chemical, and housing stocks also saw considerable weakness on the day, while gold stocks rallied despite a continued decrease by the price of the precious metal.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved the downside during trading on Friday. Japan's Nikkei 225 Index dropped by 0.7 percent, while Hong Kong's Hang Seng Index tumbled by 1.1 percent.

The major European markets also moved lower on the day. While the French CAC 40 Index fell by 0.6 percent, the U.K.'s FTSE 100 Index and the German DAX Index slumped by 1.1 percent and 1.4 percent, respectively.

In the bond market, treasuries turned in a relatively lackluster performance before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 2.271 percent.

Looking Ahead

The Fed is likely to be in the spotlight next week, although traders are also likely to keep an eye on reports on second quarter GDP, durable goods orders, and consumer confidence.

On the earnings front, Exxon Mobil (XOM), Ford (F), Facebook (FB), Twitter (TWTR), and Pfizer (PFE) are among the slew of companies scheduled to release their quarterly results next week.