U.S. Stocks Pull Back Sharply Following Recent Strength

Following the rally seen in the previous session, stocks showed a substantial move back to the downside during trading on Thursday. The major averages all moved sharply lower, with the tech-heavy Nasdaq showing a particularly steep drop.

The major averages climbed off their worst levels going into the close but still posted significant losses. The Dow tumbled 807.77 points or 2.8 percent to 28,292.73, the Nasdaq plummeted 598.34 points or 5 percent to 11,458.10 and the S&P 500 plunged 125.78 points or 3.5 percent to 3,455.06.

The sell-off on Wall Street largely reflected profit taking, as some traders looked to cash in on the recent strength in the markets.

Stocks had been trending higher over the past several weeks, leading some analysts to suggest the recovery by the markets has been overdone.

The Nasdaq and the S&P 500 both ended Wednesday’s trading at record closing highs, while the Dow reached its best closing level in over six months.

In a marked reversal from recent sessions, tech stocks led the markets lower, as reflected by the nosedive by the Nasdaq.

Tech giants Apple (AAPL), Microsoft (MSFT) Alphabet (GOOGL) and Amazon (AMZN) all posted steep losses on the day following recent strength.

On the U.S. economic front, the Labor Department released a report showing first-time claims for U.S. unemployment benefits tumbled by more than expected in the week ended August 29th.

The Labor Department said initial jobless claims declined to 881,000, a decrease of 130,000 from the previous week’s revised level of 1.011 million.

Economists had expected jobless claims to drop to 950,000 from the 1.006 million originally reported for the previous week.

However, Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics, noted the decrease in jobless claims was largely due to a shift by the Labor Department to a new seasonal adjustment process.

The Labor Department is scheduled to release its more closely watched monthly employment report for August on Friday, with employment expected to surge up by 1.4 million jobs.

A separate report from the Institute for Supply Management showed a modest slowdown in the pace of growth in service sector activity in the month of August.

The ISM said its services PMI dipped to 56.9 in August from 58.1 in July, but a reading above 50 still indicates growth in the service sector. Economists had expected the index to edge down to 57.0.

Sector News

Networking stocks turned in some of the market’s worst performances on the day, dragging the NYSE Arca Networking Index down by 7.8 percent to its lowest closing level in well over a month.

Ciena (CIEN) led the sector lower after reporting better than expected fiscal third quarter results but warning an orders slowdown related to the COVID-19 pandemic is likely to adversely impact revenue for “a few quarters.”

Substantial weakness was also visible among semiconductor, software and computer hardware, as reflected by the steep drop by the tech-heavy Nasdaq.

Retail stocks also showed a significant move to the downside, with the Dow Jones U.S. Retail Index plunging by 3.9 percent after ending the previous session at a record closing high.

Housing, biotechnology, chemical, and healthcare stocks also saw considerable weakness on the day amid a broad-based sell-off on Wall Street.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher on Wednesday, although stocks in China and Hong Kong bucked the uptrend. Japan’s Nikkei 225 Index advanced by 0.9 percent, while South Korea’s Kospi jumped by 1.3 percent.

Meanwhile, the major European markets moved to the downside over the course of the day. While the French CAC 40 Index fell by 0.4 percent, the German DAX Index and the U.K.’s FTSE 100 Index tumbled by 1.4 percent and 1.5 percent, respectively.

In the bond market, treasuries moved higher, extending the upward trend seen over the past several sessions. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.9 basis points to 0.622 percent.

Looking Ahead

Trading on Friday is likely to be driven by reaction to the Labor Department’s monthly jobs report, which could have a significant impact on the economic outlook.

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