RTTNews - After a weak start to the session, stocks are posting steep losses in mid-morning trading on Tuesday, as traders are engaging in profit taking amid little reaction to the day's economic data. The major averages are all in negative territory by notable margins, further offsetting last week's gains.
On the economic front, 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.
Separately, the Labor Department released a report showing a much bigger than expected increase in productivity in the second quarter, although 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.
Traders are also looking to the two-day Federal Open Market Committee meeting that begins today, although the Fed's rate decision is not expected to be revealed until Wednesday. 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.
In corporate news, engineering company, Fluor (FLR) reported its second quarter results after the close of trading on Monday, reporting earnings that fell year-over-year but came in above analyst estimates. Revenues fell 8 percent to $5.29 billion, falling short of analysts' estimates. However, the company maintained its 2009 earnings estimate.
Virtualization software maker VMware (VMW) announced a deal to buy privately held SpringSource, a specialist in open-source Java framework, for $362 million in cash.
The major averages have seen some further downside in recent trading, falling to new lows for the session. The Dow is currently down 96.05 at 9,241.90, the Nasdaq is down 23.83 at 1,968.41 and the S&P 500 is down 11.40 at 995.70.
Banking and steel stocks are retreating by considerable margins in mid-morning trading, with the Kbw Banking Index and the NYSE Arca Steel Index falling by 3.6 percent and 2.9 percent, respectively. The banking index is pulling back off of its best closing level in over seven months.
Notable weakness is also visible among commercial real estate stocks, as reflected by the 3.5 percent loss being shown by the Morgan Stanley REIT Index. The index is continuing to retreat from more than nine-month closing high set last Friday.
The index is being led lower by shares of PS Business Parks (PSB), which are down by 9.7 percent. The downward move comes amid fears of share dilution as the company prepares to issue 3 million shares of common stock.
Electronic storage, gold, housing, oil service and defense stocks are also retreating by notable margins, reflecting the broad based weakness in the equity markets in mid-morning dealing.
Meanwhile, some health insurance and biotechnology stocks are bucking the day's downtrend, rising by modest margins, although the Morgan Stanley Healthcare Payor Index and the NYSE Arca Biotechnology Index remain stuck in their recent ranges.
Stocks Driven By Analyst Comments
Shares of Dynegy (DYN) are falling in mid-morning trading after Deutsche Securities downgraded the stock from Buy to Hold. The broker lowered its target price on the stock to $2 from $3, reacting to the firm's deal to sell energy plants to LS Power. The stock is down by 7.6 percent, backing off of the one month closing high set on Monday.
MBIA Inc. (MBI) is also retreating following a downgrade at JP Morgan, which lowered its rating on the stock to Underweight from Neutral. The broker cited concerns over the firm's earnings as the catalyst for the downgrade. Shares of MBIA are currently down 13.5 percent.
On the other hand, Qlogic (QLGC) is on the rise after the company's stocks was upgraded by RBC Capital Markets from Sector Perform to Outperform. The stock is up by 4.5 percent, rising to its best intraday price in over two months earlier in the session.
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 are moving notably lower, with the French CAC 40 Index and the U.K.'s FTSE 100 Index down by 1.3 percent and 1.1 percent, respectively, while the German DAX Index is down by 2.2 percent.
In the bond markets, treasuries are seeing strong gains amid another pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note is trading at 3.697 percent, posting a loss of 7.4 basis points.
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