Stocks Pull Back On Drop In Oil Prices, Yellen Comments - U.S. Commentary

(RTTNews) - After initially showing a lack of direction, stocks saw considerable weakness over the course of the trading day on Wednesday. The pullback on the day came on the heels of the rally seen in the previous session, which lifted the Nasdaq to a four-month closing high.

The major averages closed firmly in negative territory, not far off their worst levels of the day. The Dow slid 158.67 points or 0.9 percent to 17,729.68, the Nasdaq fell 33.08 points or 0.6 percent to 5,123.22 and the S&P 500 tumbled 23.12 points or 1.1 percent to 2,079.51.

The weakness that emerged on Wall Street was partly due to a sharp drop by the price of crude oil, as crude for January delivery plunged by $1.91 to $39.94 a barrel.

The price of crude oil closed below $40 a barrel for the first time since August after the Energy Information Administration said U.S. crude oil inventories increased by about 1.2 million barrels in the week ended November 27th.

Concerns about the outlook for monetary policy also weighed on the markets, as Federal Reserve Chair Janet Yellen delivered remarks that seemed to signify the central bank remains on track to raise interest rates later this month.

In a speech to the Economic Club of Washington, Yellen stopped short of explicitly saying the Fed will hike rates but acknowledged the conditions for tightening are on the verge of being met.

"I currently judge that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market," Yellen said.

She added, "Ongoing gains in the labor market, coupled with my judgment that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2% as the disinflationary effects of declines in energy and import prices wane."

Yellen downplayed concerns about the global economy that may have kept the Fed from raising rates earlier this year.

On the economic front, payroll processor ADP released a report before the start of trading showing that employment in the private sector increased by more than expected in November.

ADP said private sector employment jumped by 217,000 jobs in November after climbing by an upwardly revised 196,000 jobs in October. Economists had expected an increase of about 190,000 jobs.

A separate report from the Labor Department showed that labor productivity increased by more than initially estimated in the third quarter.

The Fed also released its Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts.

The Beige Book said the districts indicated that economic activity increased at a modest pace in most regions of the country since the previous report.

Sector News

Most of the major sectors moved to the downside on the day, reflecting broad based selling pressure on Wall Street. Substantial weakness was visible among energy stocks, which moved sharply lower along with the price of crude oil.

Reflecting the weakness in the energy sector, the NYSE Arca Natural Gas Index plunged by 4 percent, while the Philadelphia Oil Service Index and the NYSE Arca Oil & Gas Index slumped by 3.2 percent and 2.6 percent, respectively.

Trucking stocks also showed a steep drop, dragging the Dow Jones Trucking Index down by 3.4 percent. With the drop, the index fell to its lowest closing level in three months.

C.H. Robinson (CHRW), YRC World (YRCW), and Heartland Express (HTLD) turned in some of the trucking sector's worst performances.

Railroad, gold and utilities stocks also saw considerable weakness on the day, while oil-sensitive airline stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Wednesday. Japan's Nikkei 225 Index fell by 0.4 percent, while Hong Kong's Hang Seng Index rose by 0.4 percent.

The major European markets also closed mixed once again. While the U.K.'s FTSE 100 Index climbed 0.4 percent, the French CAC 40 Index edged down by 0.2 percent and the German DAX Index dropped by 0.6 percent.

In the bond market, treasuries gave back ground after ending the previous session notably higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.3 basis points to 2.178 percent.

Looking Ahead

Trading on Thursday may be impacted by reports on weekly jobless claims, service sector activity, and factory orders as well as Yellen's testimony before the Congressional Joint Economic Committee.

The outcome of the European Central Bank's monetary policy meeting is also likely to be in focus, with the bank expected to provide further stimulus.

Nonetheless, overall activity may be somewhat subdued as traders look ahead to the monthly jobs report due to be released Friday morning.