Lingering Interest Rate Uncertainty Weighing On Wall Street

Stocks have moved mostly lower in morning trading on Monday, with the major averages all moving to the downside after ending last Friday’s trading narrowly mixed.

Currently, the major averages are off their lows of the session but still firmly negative. The Dow is down 235.84 points or 0.7 percent at 34,194.04, the Nasdaq is down 114.65 points or 1.0 percent at 11,346.85 and the S&P 500 is down 37.22 points or 0.9 percent at 4,034.48.

The weakness on Wall Street partly reflects lingering uncertainty about the outlook for interest rates following last Friday’s stronger-than-expected jobs data.

While the Federal Reserve is widely expected to slow the pace of interest rate hikes next week, continued labor market tightness and elevated inflation may still lead the central bank to raise rates higher than currently anticipated.

Adding to the worries about where rates will peak, the Institute for Supply Management released a report this morning showing U.S. service sector activity unexpectedly grew at an accelerated rate in the in the month of November.

The ISM said its services PMI climbed to 56.5 in November from 54.4 in October, with a reading above 50 indicating growth in the sector. The increase surprised economists, who had expected the index to dip to 53.1.

Andrew Hunter, Senior U.S. Economist at Capital Economics, said the services index is “consistent with the recent consumption data in pointing to decent activity growth in the fourth quarter.”

“But we suspect that resilience will fade next year, as higher interest rates start to take a bigger toll,” Hunter added.

A separate report released by the Commerce Department showed new orders for U.S. manufactured goods jumped by more than expected in the month of October.

Banking stocks have moved sharply lower in morning trading, with the KBW Bank Index tumbling by 2.5 percent to its lowest intraday level in almost a month.

Substantial weakness has also emerged among housing stocks, as reflected by the 2.1 percent slump by the Philadelphia Housing Sector Index.

Transportation stocks have also shown a significant move to the downside, dragging the Dow Jones Transportation Average down by 2.0 percent.

Gold, brokerage and retail stocks are also seeing considerable weakness on the day, moving lower along with most of the other major sectors.

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Monday. Japan’s Nikkei 225 Index edged up by 0.2 percent, while China’s Shanghai Composite Index shot up by 1.8 percent and Hong Kong’s Hang Seng Index soared by 4.5 percent.

Meanwhile, the major European markets are turning in a mixed performance on the day. While the U.K.’s FTSE 100 Index is up by 0.3 percent, the German DAX Index and the French CAC 40 Index are both down by 0.6 percent.

In the bond market, treasuries have pulled back sharply after trending higher over the past few sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 7.7 basis points at 3.583 percent.

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