Continued Drop In Oil Prices Weighs On Wall Street - U.S. Commentary

(RTTNews) - Following the sell-off that was seen in the previous session, stocks saw some further downside during trading on Tuesday. The drop on the day extended a recent downward trend by the markets, with the Dow and the S&P 500 pulling back further off their record highs.

The major averages climbed well off their worst levels in afternoon trading but still ended the day firmly in the red. The Dow dropped 130.01 points or 0.7 percent to 17,371.64, the Nasdaq tumbled 59.84 points or 1.3 percent to 4,592.74 and the S&P 500 slid 17.97 points or 0.9 percent to 2,002.61.

The weakness on Wall Street was partly due to a continued decrease by the price of crude oil, which fell well below $50 a barrel.

After plunging $2.65 to $50.04 a barrel on Monday, crude for February delivery tumbled $2.11 to a new five-year closing low of $47.93 a barrel.

The recent drop in prices has raised concerns about the economic impact of a slowdown by the oil and gas industry despite indications that falling gasoline prices will boost consumer spending.

Negative sentiment was also generated by a report from the Institute for Supply Management showing that activity in the U.S. service sector grew at a notably slower rate in the month of December.

The ISM said its non-manufacturing index fell to 56.2 in December from 59.3 in November. While a reading above 50 indicates continued growth in the service sector, economists had expected the index to show a more modest drop to 58.0.

With the bigger than expected decrease, the non-manufacturing index fell to its lowest level since hitting 56.0 last June.

However, Paul Dales, Senior U.S. Economist at Capital Economics, said the drop by the index is "nothing to worry about since November's reading was a nine-year high."

A separate report from the Commerce Department showed a slightly bigger than expected drop in factory orders in the month of November.

Sector News

Railroad stocks saw substantial weakness on the day, resulting in a 2.6 percent loss by the Dow Jones Railroads Index. With the steep drop, the index ended the session at its lowest closing level in well over two months.

Greenbrier (GBX) and CSX Corp. (CSX) turned in two of the railroad sector's worst performances, falling by 5.3 percent and 4 percent, respectively.

Considerable weakness was also visible among banking stocks, as reflected by the 2.6 percent loss posted by the Dow Jones Banks Index. The index also set a two-month closing low.

Semiconductor, networking, and brokerage stocks also saw significant weakness on the day, moving lower along with most of the other major sectors.

On the other hand, gold stocks bucked the downtrend by the broader markets, driving the NYSE Arca Gold Bugs Index up by 6.7 percent. The strength in the sector came as gold for February delivery climbed $15.40 to $1,219.40 an ounce.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Tuesday. Japan's Nikkei 225 Index plunged by 3 percent, while Hong Kong's Hang Seng Index slumped by 1 percent.

The major European markets also ended the day on the downside. While the German DAX Index edged down by less than a tenth of a percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index fell by 0.7 percent and 0.8 percent, respectively.

In the bond market, treasuries moved sharply higher amid the drop in oil prices, extending a recent upward trend. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 7.6 basis points to 1.963 percent.

Looking Ahead

Economic data may attract attention on Wednesday, with traders likely to keep an eye on reports on private sector employment and international trade.

The Federal Reserve is also scheduled to release the minutes of its latest meeting, which could shed some light on the outlook for monetary policy.