U.S. Stocks Extending Pullback Amid Uncertainty About Stimulus

Stocks moved sharply lower in early trading on Thursday, extending the pullback seen over the course of the two previous sessions. The major averages continued to give back ground after reaching their best closing levels in over a month on Monday.

The major averages have regained some ground as the morning has progressed but remain sharply lower. The Dow is down 238.83 points or 0.8 percent at 28,275.17, the Nasdaq is down 166.23 points or 1.4 percent at 11,602.50 and the S&P 500 is down 34.15 points or 1 percent at 3,454.52.

The initial weakness on came amid renewed uncertainty about a new stimulus bill after Treasury Secretary Steven Mnuchin suggested on Wednesday that a new relief package is not likely to pass before next month’s elections.

Senate Majority Leader Mitch McConnell has also cast doubts on whether a bill can pass before the elections and recently announced plans to vote on a more limited relief package.

However, selling pressure waned somewhat after Mnuchin told CNBC’s “Squawk Box” that he and President Donald Trump are committed to getting a stimulus deal done.

Mnuchin said he plans to talk to House Speaker Nancy Pelosi later today and tell her that he won’t let the issue of testing, a key sticking points in talks, stand in the way.

“We’ll fundamentally agree with their testing language subject to some minor issues,” Mnuchin said. “This issue is being overblown.”

Nonetheless, stocks have remained firmly negative as traders also react to a surge in new coronavirus cases across Europe as well as tightened restrictions to battle the second wave of infections.

The European Commission warned that EU governments were unprepared for the new surge of Covid-19 infections and urged states to adopt a common strategy for the new phase of the pandemic.

Negative sentiment was also generated in reaction to a report from the Labor Department showing an unexpected increase in first-time claims for U.S. unemployment benefits in the week ended October 10th.

The report said initial jobless claims climbed to 898,000, an increase of 53,000 from the previous week’s revised level of 845,000.

Economists had expected jobless claims to edge down to 825,000 from the 840,000 originally reported for the previous week.

With the unexpected increase, jobless claims reached their highest level since topping 1 million in the week ended August 22nd.

“Failure to pass additional fiscal relief measures poses considerable downside risk to the economy, particularly as Covid-19 cases are on the rise and would likely lead to further job losses,” said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, “Failure to provide more relief raises the risk that some individuals will lose benefits altogether at the start of 2021.”

Airline stocks are turning in some of the market’s worst performances in morning trading, resulting in a 2 percent nosedive by the NYSE Arca Airline Index.

United Airlines (UAL) is posting a particularly steep loss on the day after reporting a wider than expected third quarter loss.

Significant weakness is also visible among oil producer and oil service stocks, with the NYSE Arca Oil Index and the Philadelphia Oil Service Index down by 1.8 percent and 1.5 percent, respectively.

The weakness among energy stocks comes amid a steep drop by the price of crude oil, as crude for November delivery is tumbling $1.13 to $39.91 an ounce.

Software, pharmaceutical, and semiconductor stocks are also seeing notable weakness, moving lower along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower during trading on Thursday. Japan’s Nikkei 225 Index fell by 0.5 percent, while Hong Kong’s Hang Seng Index tumbled by 2.1 percent.

The major European markets have also shown significant moves to the downside on the day. While the German DAX Index has plunged by 2.9 percent, the French CAC 40 Index is down by 2.6 percent and the U.K.’s FTSE 100 Index is down by 2 percent.

In the bond market, treasuries have pulled back off their best levels of the session but remain modestly higher. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is down by 1.1 basis points at 0.711 percent.

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