Stocks Continue To See Substantial Weakness After Early Drop - U.S. Commentary

(RTTNews) - After falling sharply early in the session, stocks continue to see substantial weakness in mid-day trading on Monday. With the sell-off on the day, the Dow is showing its biggest percentage drop on the first trading day of the year since 1932.

Currently, the major averages are off their worst levels of the day but still firmly in the red. The Dow is down 426.70 points or 2.5 percent at 16,998.33, the Nasdaq is down 138.40 points or 2.8 percent at 4,869.01 and the S&P 500 is down 47.59 points or 2.3 percent at 1,996.35.

The weakness on Wall Street comes following a steep drop by Chinese stocks, as China's Shanghai Composite Index plummeted by 6.9 percent.

The steep drop by the index triggered a trading halt on the Chinese markets, with authorities utilizing new market circuit breakers for the first time.

Disappointing manufacturing data contributed to the weakness among Chinese stocks and led to worries about the global economy.

A report released by Markit and Caixin showed that their index of Chinese manufacturing activity fell to 48.2 in December from 48.6 in November. The reading below 50 indicates a continued contraction.

Negative sentiment has also been generated by the release of disappointing U.S. data, including a report from the Institute for Supply Management showing a continued contraction in manufacturing activity.

The ISM said its purchasing managers index edged down to 48.2 in December from 48.6 in November, with a reading below 50 indicating a contraction in manufacturing activity.

The modest drop came as a surprise to economists, as the consensus estimate called for the index to inch up to a reading of 49.2.

With the unexpected decrease, the manufacturing index dropped to its lowest level since hitting 45.8 in June of 2009.

A separate report from the Commerce Department showed an unexpected decrease in construction spending in the month of November.

Geopolitical concerns are also weighing on the markets after Saudi Arabia cut diplomatic ties with Iran amid a dispute over the execution of a Shiite cleric.

Sector News

Most of the major sectors have come under considerable pressure on the day, reflecting broad based weakness on Wall Street.

Airline stocks are turning some of the market's worst performances in mid-day trading, resulting in a 3.7 percent drop by the NYSE Arca Airline Index. With the loss, the index has fallen to its lowest intraday level in over three months.

Within the airline sector, China Southern Airlines (ZNH) and Republic Airways (RJET) are posting particularly steep losses.

Substantial weakness is also visible among internet stocks, as reflected by the 3.7 percent loss being posted by the Dow Jones Internet Index. Netflix (NFLX) has helped to lead the sector lower after Baird downgraded the stock to Neutral from Outperform.

Biotechnology, steel, financial, and software stocks are also seeing significant weakness, while gold stocks are among the few groups bucking the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region saw substantial weakness during trading on Monday. Japan's Nikkei 225 Index plunged by 3.1 percent, while Hong Kong's Hang Seng Index tumbled by 2.7 percent.

The major European markets also moved sharply lower on the day. While the German DAX Index plummeted by 4.3 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index slumped by 2.5 percent and 2.4 percent, respectively.

In the bond market, treasuries have moved notably higher amid the sell-off on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 6.3 basis points at 2.206 percent.