Profit Taking Contributes To Sharp Pullback On Wall Street

Business

After ending Thursday’s choppy session modestly higher, stocks showed a substantial move back to the downside during trading on Friday. The major averages came under pressure early in the session and remained firmly negative throughout the day.

The major averages climbed off their worst levels in the final hour of trading but remained firmly negative. The Dow slid 292.30 points or 0.9 percent to 33,706.74, the Nasdaq plunged 260.12 points or 2 percent to 12,705.22 and the S&P 500 tumbled 55.26 points or 1.3 percent to 4,228.48.

With the drop on the day, the major averages all moved lower for the week, with the Nasdaq and the S&P 500 snapping four-week winning streaks.

While the Nasdaq dove by 2.6 percent, the S&P 500 slumped by 1.2 percent and the narrower Dow edged down by 0.2 percent.

The weakness on Wall Street came as traders looked to cash in on recent strength in the markets, which lifted the major averages well off their June lows to their best levels in almost four months.

Traders may have been moving money out of stocks amid caution ahead of next week’s economic symposium in Jackson Hole, Wyoming.

Remarks by Federal Reserve officials at the annual symposium are likely to be in focus, as traders look for additional clues about the pace of future interest rate hikes.

Recent comments from some Fed officials have indicated the central bank will continue to raise interest rates aggressively at its next meeting in September.

St. Louis Fed president James Bullard said recently that he expects a third straight 75 basis point interest rate hike in September, while San Francisco Fed colleague Mary Daly said that raising rates by 50 or 75 basis points next month would be “reasonable.”

Kansas City Fed president Esther George argued that the drop in inflation registered in July was not evidence the underlying problem was fixed.

The sell-off on Wall Street may have been exaggerated by low volume as traders stuck to the sidelines ahead of the Jackson Hole symposium as well as next week’s reports on durable goods orders, new home sales, and personal income and spending.

The personal income and spending report due next Friday is likely to attract particular attention, as it includes a reading on inflation said to be preferred by the Fed.

Sector News

Airline stocks showed a substantial move to the downside on the day, resulting in a 4.4 percent nosedive by the NYSE Arca Airline Index.

Significant weakness was also visible among semiconductor stocks, as reflected by the 2.8 percent slump by the Philadelphia Semiconductor Index.

Applied Materials (AMAT) posted a steep loss even though the semiconductor equipment maker reported better than expected fiscal third quarter results and provided upbeat guidance.

Brokerage stocks also saw considerable weakness, dragging the NYSE Arca Broker/Dealer Index down by 2.7 percent.

Steel, gold, and housing stocks are showed notable moves to the downside, while pharmaceutical stocks were among the few groups to buck the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Friday. While Hong Kong’s Hang Seng Index crept up by 0.1 percent, Japan’s Nikkei 225 Index edged marginally lower and China’s Shanghai Composite Index fell by 0.6 percent.

Meanwhile, European stocks moved mostly lower on the day. The German DAX Index slumped by 1.1 percent and the French CAC 40 Index slid by 0.9 percent, although the U.K.’s FTSE 100 Index bucked the downtrend and inched up by 0.1 percent.

In the bond market, treasuries moved sharply lower amid concerns about the outlook for interest rates. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped 10.9 basis points to a one-month closing high of 2.989 percent.

Looking Ahead

The Jackson Hole symposium is likely to be in the spotlight next week, while traders are also likely to keep an eye on the reports on durable goods orders, new home sales, and personal income and spending.

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