U.S. Stocks See Further Downside After Coming Under Pressure In Early Trading

Stocks moved sharply lower in early trading on Monday and have seen further downside over the course of the session. The major averages have all come under pressure after ending last Friday’s trading narrowly mixed.

The major averages have moved roughly sideways in recent trading, lingering near their worst levels of the day. The Dow is down 419.36 points or 1.2 percent at 34,010.52, the Nasdaq is down 197.67 points or 1.7 percent at 11,263.82 and the S&P 500 is down 65.42 points or 1.6 percent at 4,006.28.

The sell-off on Wall Street partly reflects lingering uncertainty about the outlook for interest rates following last Friday’s stronger-than-expected jobs data.

While the Federal Reserve is widely expected to slow the pace of interest rate hikes next week, continued labor market tightness and elevated inflation may still lead the central bank to raise rates higher than currently anticipated.

Adding to the worries about where rates will peak, the Institute for Supply Management released a report this morning showing U.S. service sector activity unexpectedly grew at an accelerated rate in the in the month of November.

The ISM said its services PMI climbed to 56.5 in November from 54.4 in October, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1.

A separate report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of October.

“The risks that the Fed might need to do more remain elevated and that is why this economy needs to head to a recession,” said Edward Moya, senior market analyst at OANDA.

He added, “This next recession however won’t be rescued by quick Fed easing or a fiscal response as that will fuel inflation risks.”

Sector News

Banking stocks continue to turn in some of the market’s worst performances on the day, dragging the KBW Bank Index down by 3.9 percent to its lowest intraday level in a month.

Substantial weakness has also emerged among oil service stocks, as reflected by the 3.4 percent nosedive by the Philadelphia Oil Service Index.

The sell-off by oil service stocks comes amid a steep drop by the price of crude oil, with crude for January delivery tumbling $1.99 to $77.99 a barrel.

Transportation stocks have also shown a significant move to the downside on the day, resulting in a 2.9 percent slump by the Dow Jones Transportation Average.

Gold, oil producer and computer hardware stocks are also seeing considerable weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Monday. Japan’s Nikkei 225 Index edged up by 0.2 percent, while China’s Shanghai Composite Index shot up by 1.8 percent and Hong Kong’s Hang Seng Index soared by 4.5 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.’s FTSE 100 Index crept up by 0.2 percent, the German DAX Index fell by 0.6 percent and the French CAC 40 Index slid by 0.7 percent.

In the bond market, treasuries have pulled back sharply after trending higher over the past few sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 8.2 basis points at 3.588 percent.

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