RTTNews - Stocks posted notable losses on Tuesday, as traders did some additional profit taking ahead of key economic data due out in the second half of the week. The major averages all ended the day firmly in negative territory, adding to the moderate losses posted in the previous session.
On the economic front, traders largely shrugged off the Labor Department's report showing a much bigger than expected increase in productivity in the second quarter. The growth came as hours worked fell at a faster pace than output. At the same time, the report also showed a steep drop in unit labor costs.
The report said that productivity increased by 6.4 percent in the second quarter compared to a downwardly revised 0.3 percent increase in the first quarter. Economists had expected productivity to increase by 5.5 percent.
Meanwhile, the Labor Department also said that unit labor costs fell by 5.8 percent in the second quarter following a revised 2.7 percent decrease in the first quarter. The steep drop in costs exceeded the expectations of economists, who had expected a 2.5 percent drop.
Separately, the Commerce Department released a report showing that wholesale inventories fell by much more than expected in the month of June, although the report also showed a modest increase in wholesale sales.
The report showed that wholesale inventories fell 1.7 percent in June following a revised 1.2 percent decrease in May. Economists had expected inventories to fall 0.9 percent compared to the 0.8 percent drop originally reported for the previous month.
Traders are also looking to the two-day Federal Open Market Committee meeting that began today, although the Fed's rate decision is not expected to be revealed until tomorrow afternoon. The central bank is widely expected to keep the fed funds futures rate unchanged.
However, the Fed's commentary on growth and inflation and any additional information on quantitative easing measures have the potential to move the markets.
The major averages all ended the day notably lower, although they were well off their worst levels of the day. The Dow closed down by 96.50 points or 1 percent at 9,241.45, the Nasdaq slipped by 22.51 points or 1.1 percent to 1,969.73 and the S&P 500 fell by 12.75 points or 1.3 percent to 994.35.
Banking stocks saw significant losses on the day, with the Kbw Bank Index posting a loss of 4.3 percent. The index pulled back off of the eight-month closing high it set on Monday.
The index was dragged lower by shares of Zions Bancorp (ZION) and Synovus Financial Corp. (SNV), which plunged by 8.4 percent and 7.9 percent, respectively. With the decline, the stocks backed away from three-month closing highs set on Monday.
Real estate stocks also retreated, although by more moderate margins. The Morgan Stanley REIT Index fell by 3 percent, continuing to pull back off the more than nine-month closing high it set last Friday.
Resource stocks also suffered on the day, with steel, oil service, natural gas and gold stocks largely extending their recent losses. The slide by resource stocks came amid a retreat by most commodity prices on the NYMEX.
Telecommunication, networking, defense and healthcare provider stocks also fell, while some railroad, trucking and electronic storage stocks bucked the day's downtrend.
Bank of America (BAC) led way lower in the Dow, posting a loss of 5 percent on the session. With the decline, the stock pulled back further off the eight-month closing high set last Thursday.
Financial stalwart JP Morgan Chase (JPM) also fell, but by a more modest margin, recording a loss of 3.4 percent for the day. With the pullback, the stock backed off of a ten-month closing high set on Monday.
Additional weakness was visible in shares of conglomerate General Electric (GE), which slipped by 4 percent on the session. The stock retreated from its best closing price in roughly seven months, reached on Friday.
While Travelers (TRV), American Express (AXP), Cisco (CSCO) and Disney (DIS) also saw considerable losses, DuPont (DD) bucked the day's downtrend, gaining by 1.9 percent. With the advance, the stock finished at an eight-month high. Wal-Mart (WMT), 3M (MMM) and Alcoa (AA) also rose, although by more modest margins.
In overseas trading, stock markets across the Asia-Pacific region largely turned in strong performances on Tuesday. Japan's benchmark Nikkei 225 Index rose by 0.6 percent, while Hong Kong's Hang Seng Index climbed by 0.7 percent.
Meanwhile, the major European markets closed notably lower, with the French CAC 40 Index and the U.K.'s FTSE 100 Index finishing down by 1.4 percent and 1.1 percent, respectively, while the German DAX Index fell by 2.4 percent.
In the bond markets, treasuries saw strong gains amid another pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, closed at 3.693 percent, posting a loss of 7.8 basis points on the day.
Aside from the Fed's interest rate decision and economic commentary on Wednesday, traders will look to data on the trade balance for June from the Commerce Department. Economists expected the deficit to widen to $28.6 billion for June from $26.0 billion in May. The report is set to be released at 8:30 a.m. ET.
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