Stocks Extend Downward Trend Following Chinese Sell-Off - U.S. Commentary

(RTTNews) - Stocks moved notably lower over the course of the trading day on Monday, extending the downward move seen over the past several sessions. With the drop, the Dow ended the session at its lowest closing level in almost six months.

The major averages ended the session firmly in negative territory but off their worst levels of the day. The Dow fell 127.94 points or 0.7 percent to 17,440.59, the Nasdaq tumbled 48.85 points or 1 percent to 5,039.78 and the S&P 500 slid 12.01 points or 0.6 percent to 2,067.64.

The weakness on Wall Street came on the heels of a sell-off by Chinese stocks, with the Shanghai Composite Index plunging 345.35 points or 8.5 percent to 3,725.56.

The decrease, which marked the biggest percentage drop by the index since February of 2007, reflected concerns about the Chinese economy.

Trepidation ahead of this week's Federal Reserve meeting also weighed on stocks, as the central bank is due to announce its latest monetary policy decision on Wednesday.

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.

On the U.S. economic front, the Commerce Department released a report before the start of trading showing a substantial rebound in U.S. durable goods orders in the month of June.

The report said durable goods orders jumped by 3.4 percent in June following a revised 2.1 percent decrease in May Economists had expected orders to increase by 3.1 percent.

Excluding a significant increase in orders for transportation equipment, durable goods orders still rose by 0.8 percent in June compared to expectations for a 0.5 percent increase.

Sector News

After seeing some early strength, gold stocks moved sharply lower over the course of the trading day, dragging the NYSE Arca Gold Bugs Index down by 4.5 percent. With the drop, the index ended the session at its lowest closing level in over twelve years.

The sell-off by gold stocks came despite an increase by the price of the precious metal, as gold for August delivery climbed $10.40 to $1,096.40 an ounce.

Substantial weakness was also visible among airline stocks, as reflected by the 3.5 percent loss posted by the NYSE Arca Airline Index. The drop pulled the index down to a nearly nine-month closing low.

Republic Airways (RJET) posted a particularly steep loss, plunging by 55.7 percent after warning of weaker than expected second quarter results.

Energy stocks also came under pressure, moving lower along with the price of crude oil. With crude for September delivery sliding $0.75 to $47.39 a barrel, the NYSE Arca Oil & Gas Index fell by 2.2 percent.

Software, brokerage, networking, and internet stocks also saw considerable weakness on the day, while utilities stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Monday. Japan's Nikkei 225 Index dropped by 1 percent, while Hong Kong's Hang Seng Index plummeted by 3.1 percent.

The major European markets also came under pressure on the day. While the U.K.'s FTSE 100 Index slumped by 1.1 percent, the German DAX Index and the French CAC 40 Index both plunged by 2.6 percent.

In the bond market, treasuries extended their recent uptrend amid the continued weakness on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, dropped by 4.3 basis points to 2.228 percent.

Looking Ahead

Reports on home prices and consumer confidence are likely to attract some attention on Tuesday, although trading activity may be somewhat subdued ahead of the Fed announcement on Wednesday.

On the earnings front, DuPont (DD), Ford (F), Merck (MRK), Pfizer (PFE), and UPS (UPS) are among the companies due to report their quarterly results before the start of trading on Tuesday.