Stocks Recover From Initial Sell-Off But Close Modestly Lower - U.S. Commentary

(RTTNews) - After moving sharply lower at the open, stocks showed a substantial recovery attempt over the course of the trading day on Monday. The Nasdaq and the S&P 500 bounced well off the one-month intraday lows set in early trading but still closed in the red.

The major averages all posted modest losses on the day. The Dow dipped 41.93 points or 0.3 percent to 17,071.22, the Nasdaq edged down 6.34 points or 0.1 percent to 4,505.85, and the S&P 500 slipped 5.05 point or 0.3 percent to 1,977.80.

The initial sell-off on Wall Street was largely due to concerns about the impact of protests by pro-democracy activists in Hong Kong.

People in Hong Kong have been protesting against Chinese authorities in an effort to gain more independence from mainland China.

However, Flemming Nielsen, senior analyst at Danske Bank, said the most likely outcome is that the political crisis in Hong Kong stays local.

"In our view, both the Chinese leadership and the opposition in Hong Kong including Occupy Central have an interest in not letting the crisis get out of control," Nielsen said.

He added, "The Chinese leadership does not want to discredit the 'one country, two systems' political model and the opposition in Hong Kong does not want to alienate the majority of the Hong Kong population that is concerned about stability."

While bargain hunting contributed to the rebound from the early weakness, lingering concerns about the end of quantitative easing helped keep the major average in the red.

Traders were also presented with a mixed U.S. economic data, including better than expected personal spending data and a report showing a bigger than expected drop in pending home sales.

Before the start of trading, the Commerce Department released a report showing that personal spending rose by slightly more than expected in the month of August.

The report said personal spending increased by 0.5 percent in August, while revised data showed that spending was unchanged in July. Economists had expected spending to increase by about 0.4 percent.

The Commerce Department also said personal income rose by 0.3 percent in August after edging up by 0.2 percent in July. The increase in income matched economist estimates.

Meanwhile, a separate report released by the National Association of Realtors said pending home sales pulled back by much more than expected in the month of August.

NAR said its pending home sales index fell 1.0 percent to 104.7 in August after jumping 3.2 percent to 105.8 in July. Economists had been expecting pending home sales to drop by about 0.5 percent.

A pending home sale is one in which a contract was signed but not yet closed. Normally, it takes four to six weeks to close a contracted sale.

Sector News

Most of the major sectors were able to recover from the initial sell-off, but steel stocks saw continued weakness amid concerns about Chinese demand. The NYSE Arca Steel Index tumbled by 2 percent to a six-month closing low.

Cliffs Natural Resources (CLF) and Posco (PKX) turned in two of the steel sector's worst performances, falling by 5.6 percent and 4.2 percent, respectively.

Significant weakness also remained visible among airline stocks, as reflected by the 1.9 percent loss posted by the NYSE Arca Airline Index. The drop extended a recent downward trend by the index, which fell to its worst closing level in well over a month.

Gold, brokerage, and oil stocks also saw considerable weakness on the day, while natural gas stocks showed a strong move to the upside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Japan's Nikkei 225 Index rose by 0.5 percent, while Hong Kong's Hang Seng Index plunged by 1.9 percent.

Meanwhile, the major European all moved to the downside on the day. While the U.K.'s FTSE 100 Index closed just below the unchanged line, the German DAX Index and the French CAC 40 Index fall by 0.7 percent and 0.8 percent, respectively.

In the bond market, treasuries moved notably higher amid the worries about the situation in Hong Kong. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.4 basis points to 2.491 percent.

Looking Ahead

While developments overseas are likely to remain in focus on Tuesday, traders are also likely to keep an eye on reports on home prices, consumer confidence and Chicago-area business activity.