Stocks Fall Sharply As Budget Deal Adds To Fed Worries - U.S. Commentary

(RTTNews) - Stocks moved sharply lower over the course of the trading day on Wednesday, adding to the modest losses posted in the previous session. The continued pullback came as traders expressed renewed concerns about the outlook for the Federal Reserve's stimulus program.

The major averages crept up off their worst levels going into the close but still ended the day firmly in the red. The Dow slid 129.60 points or 0.8 percent to 15,843.53, the Nasdaq tumbled 56.68 points or 1.4 percent to 4,003.81 and the S&P 500 slumped 20.40 points or 1.1 percent to 1,782.22.

The sell-off on Wall Street came as news of a budget agreement in Washington added to speculation that the Fed will begin scaling back its asset purchases in the near future.

The budget agreement, announced by Rep. Paul Ryan, R-Wis., and Sen. Patty Murray, D-Wash., after the close of trading on Tuesday, would fund the government for the next two fiscal years.

The proposal calls for $63 billion in sequester relief but would reduce the deficit by $23 billion through $85 billion in reforms and non-tax revenue.

Members of both houses of Congress are expected to vote on the bipartisan budget agreement before heading home for the holidays.

While final passage of the proposed budget is not guaranteed, the legislation would lift some of the fiscal uncertainty that the Fed has frequently cited as a hindrance to the economy.

Most economists do not expect the Fed to begin winding down stimulus at its meeting next week, but passage of the budget agreement combined with more upbeat economic data could increase the likelihood of potential tapering in January.

Among individual stocks, shares of LabCorp (LH) fell sharply on the day after the medical-testing services provider provided disappointing guidance for 2014. LabCorp plunged 11 percent to an eight-month closing low.

Tax preparer H&R Block (HRB) also showed a notable move to the downside after reporting a second quarter loss that came in slightly wider than anticipated.

On the other hand, shares of MasterCard (MA) jumped 3.5 percent after the credit card giant announced a 10-for-1 stock split, an 83 percent increase to its quarterly dividend and a new $3.5 billion stock buyback program.

Sector News

After regaining some ground over the two previous sessions gold stocks showed a substantial move back to the downside on the day. The NYSE Arca Gold Bugs Index plunged by 3.8 percent but remains off its recent five-year lows.

The sharp pullback by gold stocks came even as the price of the precious metal showed only a modest decrease, slipping $3.90 to $1,257.20 an ounce.

Biotechnology stocks also came under considerable selling pressure, dragging the NYSE Arca Gold Bugs Index down by 2.8 percent. Nektar Therapeutics (NKTR) and Pharmacyclics (PCYC) turned in two of the biotech sector's worst performances.

Significant weakness was also visible among commercial real estate stocks, as reflected by the 2.5 percent drop by the Morgan Stanley REIT Index. With the loss, the index hit a three-month closing low.

Housing, steel, natural gas and electronic storage stocks also showed notable moves to the downside on the day, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region came under pressure during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.6 percent, while Hong Kong's Hang Seng Index tumbled by 1.7 percent.

The major European markets also ended the day on the downside. While the German DAX Index dropped by 0.4 percent, the U.K.'s FTSE 100 Index and the French CAC 40 Index edged down by 0.2 percent and 0.1 percent, respectively.

In the bond market, treasuries gave back some ground after closing higher in the two previous sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 4.7 basis points to 2.844 percent.

Looking Ahead

Following several quiet days, the economic calendar picks up on Thursday with the release of reports on weekly jobless claims, retail sales, and business inventories. Trading is likely to be impacted by how the data affects the outlook for the Fed's stimulus program.