U.S. Stocks Showing Significant Move Back To The Downside

Following the rally seen over the two previous sessions, stocks have shown a significant move back to the downside during trading on Monday. With the slump, the Dow and the S&P 500 are pulling back well off last Friday’s record closing highs.

Currently, the major averages are just off their lows of the session. The Dow is down 403.94 points or 1.1 percent at 38,250.48, the Nasdaq is down 138.55 points or 0.9 percent at 15,490.40 and the S&P 500 is down 35.87 points or 0.7 percent at 4,922.74.

The pullback on Wall Street comes as some traders look to cash in on the rally seen to close out the previous week amid fading optimism about the likelihood the Federal Reserve will cut interest rates in March.

Fed Chair Jerome Powell reiterated the central bank is unlikely to cut interest rates next month during an interview with “60 Minutes” on Sunday.

Powell suggested the strength of the U.S. economy even amidst elevated rates will allow the Fed to proceed carefully.

“With the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully,” Powell said.

“We want to see more evidence that inflation is moving sustainably down to 2 percent,” He added. “Our confidence is rising. We just want some more confidence before we take that very important step of beginning to cut interest rates.”

Following last week’s Fed meeting and Powell’s subsequent comments, the chances of a March rate cut have fallen to just 14.5 percent, according to CME Group’s FedWatch Tool.

Stocks saw further downside as the Institute for Supply Management released a report showing U.S. service sector growth accelerated by more than expected in the month of January.

The ISM said its services PMI climbed to 53.4 in January from a downwardly revised 50.5 in December, with a reading above 50 indicating growth in the sector. Economists had expected the index to rise to 52.0 from the 50.6 originally reported for the previous month.

The report also said the prices index surged to 64.0 in January from 56.7 in December, indicating a substantial acceleration in the pace of price growth.

Sector News

Airline stocks are seeing substantial weakness on the day, resulting in a 2.6 percent plunge by the NYSE Arca Airline Index.

Significant weakness is also visible among gold stocks, as reflected by the 2.6 percent slump by the NYSE Arca Gold Bugs Index.

The weakness in the gold sector comes amid a continued decrease by the price of the precious metal, with gold for April delivery falling $19 to $2,034.70 an ounce.

Housing, steel and commercial real estate stocks are also seeing considerable weakness, while pharmaceutical stocks are among the few groups bucking the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Japan’s Nikkei 225 Index rose by 0.5 percent, while China’s Shanghai Composite Index slumped by 1.0 percent.

Meanwhile, the major European markets are seeing modest weakness on the day. While the French CAC 40 Index has fallen by 0.3 percent, the German DAX Index and the U.K.’s FTSE 100 Index are both down by 0.2 percent.

In the bond market, treasuries are extending the sell-off seen last Friday. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 13.5 basis points at 4.168 percent.

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