Disappointing Data Leads To Sell-Off

(RTTNews) - Stocks saw substantial weakness during trading on Thursday, as traders reacted negatively to a disappointing batch of U.S. economic data. Lingering concerns about the financial situation in Europe also continued to weigh on the markets.

The major averages saw further downside going into the close, ending the session at or near their lows for the session. The Dow fell 156.06 points or 1.2 percent to 12,442.49, the Nasdaq plummeted 60.35 points or 2.1 percent to 2,813.69 and the S&P 500 dropped 19.94 points or 1.5 percent to 1,304.86.

With the losses on the day, the major averages extended the downward move seen throughout the month of May. The Dow and the S&P 500 hit four-month closing lows, while the Nasdaq fell to its lowest closing level in well over three months.

The sell-off on Wall Street was partly due to the release of some weaker than expected U.S. economic data, including a report from the Philadelphia Federal Reserve showing an unexpected contraction in regional manufacturing activity in the month of May.

The Philly Fed said its diffusion index of current activity tumbled to a negative 5.8 in May from a positive 8.5 in April, with a negative reading indicating a contraction in regional manufacturing activity. The drop surprised economists, who had expected the index to climb to a reading of 10.0.

Adding to the negative sentiment, a separate report from the Conference Board showed an unexpected drop by its leading economic indicators index.

The leading economic index edged down by 0.1 percent in April following a 0.3 percent increase in March, while economists had expected the index to inch up by 0.1 percent.

Earlier in the day, the Labor Department released a report showing that initial jobless claims unexpectedly came in unchanged in the week ended May 12th.

The report said jobless claims came in at 370,000, unchanged from the previous week's revised figure. Economists had expected jobless claims to edge down to 365,000 from the 367,000 originally reported for the previous week.

Further selling pressure was generated by news that Fitch Ratings downgraded Greece's long-term debt ratings to CCC from B-, citing the heightened risk that Greece may not be able to sustain its membership in the eurozone.

Fitch noted that a Greek exit would likely result in widespread default on private sector as well as sovereign euro-denominated obligations.

Meanwhile, Wal-Mart (WMT) bucked the downtrend by the broader markets after the retail giant reported better than expected first quarter results. The company also forecast second quarter earnings in line with analyst estimates. Shares of Wal-Mart rose by 4.2 percent.

Sector News

Most of the major sectors showed notable moves to the downside over the course of the trading day, reflecting the broad based weakness that emerged on Wall Street.

Significant weakness was visible among housing stocks, as reflected by the 5.1 percent loss posted by the Philadelphia Housing Sector Index. Standard Pacific (SPF) and KB Home (KBH) turned in two of the sector's worst performances.

Airline stocks also showed a substantial downward move, resulting in a 4.6 percent drop by the NYSE Arca Airline Index. Steep losses by Delta Air Lines (DAL) and US Airways (LCC) helped to pull the index down to a nearly four-month closing low.

Biotechnology stocks also came under considerable selling pressures, dragging the NYSE Arca Biotechnology Index down by 3.4 percent. Dendreon (DNDN) helped to lead the sector lower amid news that the SEC has launched a formal investigation of the company.

Railroad, trucking, chemical, steel, and commercial real estate stocks also posted standout losses during the broad based sell-off.

On the other hand, gold stocks bucked the downtrend, benefiting from a sharp increase by the price of gold. With gold for June delivery jumping $38.30 to $1,574.90 an ounce, the NYSE Arca Gold Bugs Index surged up by 4.4 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in yet another mixed performance on Thursday. While Japan's Nikkei 225 Index rose by 0.9 percent on upbeat Japanese GDP data, Hong Kong's Hang Seng Index slipped 0.3 percent.

Meanwhile, the major European markets all showed notable moves to the downside on the day. The U.K.'s FTSE 100 Index, the French CAC 40 Index, and the German DAX Index all ended the day down by 1.2 percent.

In the bond market, treasuries showed a strong upward move on the heels of the disappointing U.S. economic data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 6.3 basis points to a record closing low of 1.702 percent.

Looking Ahead

The economic calendar on Friday is relatively light following the release of a slew of data over the past few days. Subsequently, traders are likely to focus on the latest developments overseas.

Facebook's (FB) initial public offering is also likely to attract some attention, with the social networking giant set to begin trading on the Nasdaq.