RTTNews - With traders cashing in on recent strength, the U.S. stock markets experienced substantial weakness during trading on Monday. The major averages all moved sharply lower, more than offsetting the modest gains posted last week.

The weakness in the markets came as trades did some profit taking following the recent rally, with some disappointing economic data raising concerns that stocks have come too far too fast in light of the near-term economic outlook.

Before the start of trading, the New York Federal Reserve released a report showing that conditions for New York manufacturers have deteriorated at a faster pace in the month of June than in the previous month.

The New York Fed said its general business conditions index fell to a negative 9.41 in June from a negative 4.55 in May, with a negative reading indicating a deterioration in conditions. Economists had expected the index to edge down to a negative 5.10.

Combined with some strength in the value of the U.S. dollar, the data contributed to a notable pullback in commodities prices, which in turn led to steep losses by resource stocks.

While stocks showed a steep decline in morning trading, however, selling pressure waned over the course of the afternoon. Additionally, it is worth noting that the extent of the downward move may have been exaggerated by below average volume.

In afternoon trading, investors largely shrugged off a report from the National Association of Home Builders showing a deterioration in homebuilder confidence in the month of June.

The report showed that the National Association of Home Builders/Wells Fargo Housing Market Index fell to a reading of 15 in June from a reading of 16 in May. Economists had been expecting the index to edge up to a reading of 17.

Additionally, President Barack Obama spoke earlier in the day, discussing his plans for reforming this country's health care system at the American Medical Association's annual meeting. However, the markets didn't appear to pay much attention to the president's remarks.

Obama warned that failure to reform the health care system would bankrupt the nation. Comparing the country to General Motors, the president warned that the U.S. would face a similar outcome if health care costs continue to rise.

The major averages all ended the session firmly in negative territory, although off their worst levels of the day. The Dow closed down 187.12 points or 2.1 percent at 8,612.13, the Nasdaq closed down 42.42 points or 2.3 percent at 1,816.38 and the S&P 500 closed down 22.49 points or 2.4 percent at 923.72.

Sector News

A variety of sectors showed substantial moves to the downside over the course of the trading day, reflecting broad based weakness in the markets. Resource stocks turned in some of the worst performances amid the decrease in commodities prices.

Among resource stocks, steel stocks posted particularly steep losses, dragging the NYSE Arca Steel Index down 6 percent. With the loss, the index pulled back further off the eight-month closing high that it set last Thursday.

Considerable weakness was also visible among oil service stocks, as reflected by the 3.2 percent loss posted by the Philadelphia Oil Service Index. The weakness in the sector came as crude for July delivery closed down $1.42 at $70.62 a barrel.

Rowan Cos. (RDC) helped to lead the oil service sector lower after Credit Suisse downgraded its rating on the company's stock to Underperform from Neutral. Rowan closed down 6.4 percent, pulling back further off last Thursday's eight-month closing high.

Outside of the resource sector, transportation stocks also posted substantial losses, resulting in a 4.3 percent loss by the Dow Jones Transportation Average. CSX Corp. (CSX) and YRC Worldwide (YRCW) turned in two of the sector's worst performances.

Most of the other major sectors also showed notable declines, with real estate, biotechnology, and wireless stocks posting particularly steep losses. Nokia (NOK) and Ericsson (ERIC) helped to lead the wireless sector lower, falling by about 4.5 percent each.

Dow Components

Nearly all of the Dow components ended the day in negative territory, contributing to the steep loss posted by the blue chip index.

DuPont (DD) turned in one of the Dow's worst performances, with the chemical giant closing down 4.5 percent. With the loss, shares of DuPont ended the session at their worst closing level in over two months.

Reflecting the weakness among resource stocks, shares of Alcoa (AA) also showed a notable decline, pulling back further off the seven-month closing high set last Thursday. Alcoa ended the session down 6.5 percent.

Caterpillar (CAT), Merck (MRK), and Pfizer (PFE) were among the other Dow components that posted notable losses, closing down 4.3 percent each.

On the other hand, Microsoft (MSFT) and American Express (AXP) were the only Dow components that ended the day higher, posting modest gains. Shares of Microsoft closed up 0.4 percent, while shares of American Express closed up 0.3 percent.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mostly lower on Monday, as traders cashed in on recent gains. Japan's benchmark Nikkei 225 Index fell nearly 1 percent after trending higher in recent weeks.

The major European markets also saw considerable weakness, with the U.K.'s FTSE 100 Index ending the session down 2.6 percent, while the French CAC 40 Index and the German DAX Index fell 3.2 percent and 3.5 percent, respectively.

Meanwhile, treasuries turned in a strong performance on the day, as some traders moved their money out of stocks and into the relative safety of government-backed bonds. Subsequently, the yield on the benchmark ten-year note closed down 7.5 basis points at 3.713 percent.

Looking Ahead

Economic data is likely to be in focus on Tuesday, with reports on housing starts, wholesale price inflation, and industrial production all scheduled to be released before the start of trading.

Housing starts are expected to increase by about 5.5 percent in May, while wholesale prices are expected to increase by about 0.6 percent. Industrial production is expected to fall by about 0.8 percent in May following a 0.5 percent drop in April.

On the earnings front, Best Buy (BBY) and Smithfield Foods (SFD) are among the companies that are scheduled to release their quarterly results before the start of trading on Tuesday.

For comments and feedback: contact editorial@rttnews.com