Stocks Extend Recent Sell-Off, Dow Sets Six-Month Low - U.S. Commentary

(RTTNews) - After fluctuating over the course of morning trading on Monday, stocks showed a substantial move to the downside in the afternoon. The sharp pullback on the day extended the recent sell-off on Wall Street, with the Dow falling to its lowest levels in six months.

The major averages ended the day firmly in the red, near their lows for the session. The Dow tumbled 223.03 points or 1.4 percent to 16,321.07, the Nasdaq dove 62.58 points or 1.5 percent to 4,213.66 and the S&P 500 plummeted 31.39 points or 1.7 percent to 1,874.74.

The weakness that emerged on Wall Street partly reflected lingering concerns about global economic growth and monetary policy divergence.

The recent downward momentum also weighed on the markets, as the S&P 500 dropped below its 200-day moving average, a key technical indicator.

However, a number of analysts have suggested that the recent pullback by the markets reflects only a temporary correction that traders will look to buy.

While the S&P 500 has fallen sharply from its mid-September high, John Higgins, Chief Markets Economist at Capital Economics, said the pullback is unlikely to mark the beginning of a bear market.

"This is because bear markets typically only occur in, and around, recessions, rather than in the middle of entrenched recoveries," Higgins said.

He added, "We are sticking with our long-held forecast that the index will end this year around 1,950 (compared to 1,906 now) and grind slowly higher to 2,100 by the end of 2016."

The extent of the sell-off on Monday may partly have reflected below average volume due to the Columbus Day holiday and the lack of major U.S. economic data.

The economic calendar is set to pick up later in the week, however, with traders likely to keep an eye on reports on retail sales, producer prices, industrial production, and housing starts.

Sector News

Energy stocks helped to lead the markets lower once again, with significant weakness visible among natural gas and oil service stocks.

The NYSE Arca Natural Gas Index and the Philadelphia Oil Service Index tumbled by 3.6 percent and 3.1 percent, respectively. Both indexes ended the session at their worst closing levels in over a year.

While crude for November delivery recovered from a low of $84.07 a barrel to end the day roughly flat, the commodity moved back to the downside in electronic trading.

Substantial weakness also emerged among chemical stocks, as reflected by the 2.9 percent plunge by the Dow Jones Chemicals Index. With the steep drop, the index fell to an eight-month closing low.

Airline stocks also extended their recent sell-off, dragging the NYSE Arca Airline Index down by 2.8 percent to its worst closing level in almost eight months.

Healthcare, electronic storage, housing, and biotech stocks also saw considerable weakness on the day, while gold and steel stocks bucked the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Monday. China's Shanghai Composite Index dropped by 0.4 percent, while Australia's All Ordinaries Index fell by 0.6 percent. The Japanese markets remained closed for a public holiday.

Meanwhile, the major European markets moved to the upside on the day. While the French CAC 40 Index edged up by 0.1 percent, the German DAX Index and the U.K.'s FTSE 100 Index rose by 0.3 percent and 0.4 percent, respectively.

In the bond market, the Securities Industry and Financial Markets Association recommended a full market close for the trading of U.S. dollar-denominated fixed-income securities due to Columbus Day.

Looking Ahead

Amid another quiet day on the U.S. economic front, earnings news is likely to be in focus during trading on Tuesday.

Citigroup (C), Johnson & Johnson (JNJ), JP Morgan (JPM), and Wells Fargo (WFC) are among the companies due to report their quarterly results before the start of trading.