Stocks Remain Mostly Negative In Mid-Day Trading - U.S. Commentary

(RTTNews) - After turning lower earlier in the session, stocks remain mostly negative in mid-day trading on Thursday. With the pullback on the day, the major averages are adding to the modest losses posted in the two previous sessions.

Currently, the major averages remain stuck in the red but off their worst levels of the day. The Dow is down 76.60 points or 0.4 percent at 18,324.28, the Nasdaq is down 10.87 points or 0.2 percent at 5,202.35 and the S&P 500 is down 10.18 points or 0.5 percent at 2,160.77.

The downturn by stocks was partly due to the release of a report from the Institute for Supply Management showing an unexpected contraction in U.S. manufacturing activity in the month of August.

The ISM said its purchasing managers index slumped to 49.4 in August from 52.6 in July, with the reading below 50 indicating the first contraction in manufacturing activity since February.

Economists had expected the index to show a much more modest decrease to a reading of 52.2, which would have still indicated growth in the sector.

Traders are also digesting a separate report from the Labor Department showing a modest uptick in first-time claims for U.S. unemployment benefits in the week ended August 27th.

The report said initial jobless claims edged up to 263,000, an increase of 2,000 from the previous week's unrevised level of 261,000. Economists had expected jobless claims to rise to 265,000.

The release of the jobless claims report comes a day ahead of the release of the Labor Department's more closely watched report on the employment situation in the month of August.

The report is expected to show an increase of about 175,000 jobs in August following the jump of 255,000 jobs in July. The unemployment rate is expected to edge down to 4.8 percent from 4.9 percent.

The jobs data is likely to have a significant impact on expectations regarding whether the Federal Reserve will raise interest rates at its next meeting later this month.

The weakness on Wall Street also comes amid a continued decrease by the price of crude oil, with crude for October delivery slumping $1.26 to $43.44 a barrel.

Crude oil remains under pressure following the release of a report from the Energy Information Administration showing a much bigger than expected weekly increase in crude oil inventories.

Sector News

Oil service stocks are seeing substantial weakness in mid-day trading due to the steep drop by the price of crude oil. The Philadelphia Oil Service Index has fallen by 2.1 percent to a nearly five-month intraday low.

Diamond Offshore (DO) is leading the oil service sector lower after the deepwater drilling contractor said a drilling contract with Petrobras was terminated prematurely.

Considerable weakness is also visible among financial stocks, with the NYSE Arca Broker/Dealer Index and the Dow Jones Banks Index falling by 1.5 percent and 1.4 percent, respectively.

Housing stocks have also shown a significant move to the downside on the day, dragging the Philadelphia Housing Sector Index down by 1.2 percent. Vulcan Materials (VMC) and KB Home (KBH) are posting notable loss.

On the other hand, gold stocks have moved sharply higher, driving the NYSE Arca Gold Bugs Index up by 4.1 percent. The index has rebounded after hitting its lowest intraday level in over two months.

The rally by gold stocks comes as the price of gold for December delivery is climbing $5.40 to $1,316.80 after ending the previous session at a two-month closing low.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region extended a recent trend and turned in another mixed performance on Thursday. Japan's Nikkei 225 Index crept up by 0.2 percent, while China's Shanghai Composite Index slid by 0.7 percent.

Meanwhile, European stocks moved mostly lower on the day. While the French CAC 40 Index closed just above the unchanged line, the U.K.'s FTSE 100 Index and the German DAX Index fell by 0.5 percent and 0.6 percent, respectively.

In the bond market, treasuries have climbed back near the unchanged line after seeing early weakness. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, is down by less than a basis point at 1.561 percent.