With traders doing some profit taking following the strong gains seen in recent sessions, stocks are seeing considerable weakness in mid-afternoon trading on Thursday. The major averages are stuck firmly in negative territory after turning lower over the course of the morning.
The weakness in the markets comes as traders do some profit taking ahead of the release of the results of the government's stress tests of the nation's nineteen largest financial institutions after the close of trading.
In an interview with RTT News, Axel Merk, chief investment officer and manager of the Merk Hard and Asian Currency Funds, warned that the government's stress test approach is not a sustainable strategy.
Merk recommended a much more steady hand approach, where stress tests happen on a continuous basis with involvement from the private sector.
Additionally, Merk warned that even many of the financial firms with sufficient capital would not be out of the woods, emphasizing very serious headwinds that are going to have a seriously negative impact on bank balance sheets in the future.
Some additional selling pressure was generated by the release of the results of the Treasury Department's auction of $14 billion worth of 30-year bonds, which attracted below average demand amid record government debt sales.
The Treasury said the auction drew a high yield of 4.288 percent and a bid-to-cover ratio of 2.14. The bid-to-cover ratio, an indicator of demand, came in well below the bid-to-cover ratio of 2.40 for the previous auction of $11 billion worth of 30-year bonds.
The initial strength in the markets came after the Labor Department released a report showing an unexpected decrease in initial jobless claims in the week ended May 2.
The report showed that jobless claims fell to 601,000 from the previous week's revised figure of 635,000. Economists had been expecting jobless claims to edge up to 635,000 from the 631,000 originally reported for the previous week.
However, the report also showed a continued increase in continuing claims, which rose to a new record high of 6.351 million in the week ended April 25 from the preceding week's revised level of 6.95 million.
The major averages are currently posting substantial losses, just off their worst levels of the day. The Dow is currently down 115.65 at 8,396.63, the Nasdaq is down 50.69 at 1,708.41 and the S&P 500 is down 14.09 at 905.44.
A majority of the Dow components are trading in negative territory in mid-afternoon trading, contributing to the steep loss by the blue chip index.
After seeing some initial strength, JP Morgan (JPM) is currently turning in one of the Dow's worst performances, with the financial services giant currently down 4.9 percent. At its high for the session, JP Morgan was at a six-month intraday high.
Shares of Alcoa (AA) have also come under pressure over the course of the trading day after moving higher at the open. The aluminum producer is currently down 6.9 percent after reaching its best intraday level in almost four months.
Hewlett-Packard (HPQ), Caterpillar (CAT), and AT&T (T) are also posting notable losses, dragging the Dow firmly into negative territory.
On the other hand, Bank of America (BAC) and Merck (MRK) are holding onto strong gains, with shares of Bank of America up 4.3 percent and shares of Merck up 3.3 percent.
After helping to lead the way higher in early trading, banking stocks are turning in some of the worst performances in afternoon trading. The S&P Banks Index is currently down 7.2 percent after reaching a four-month intraday high.
Significant weakness also remains visible among technology stocks, with semiconductor electronic storage, and networking stocks posting notable losses. Housing and real estate stocks also remain under considerable selling pressure.
Meanwhile, health insurance stocks continue to buck the downtrend by the broader markets, driving the Morgan Stanley Healthcare Payor Index up 7.4 percent. Some pharmaceutical and biotechnology stocks are also posting strong gains.
In overseas trading, stock in the Asia-Pacific region extended a recent upward move, with Japan's benchmark Nikkei 225 Index jumping 4.6 percent. Japanese stocks were playing catch up after the market was closed for the three previous sessions.
Meanwhile, the major European markets ended the day mixed after seeing considerable strength earlier in the session. While the U.K.'s FTSE 100 posted a modest gain, the French CAC 40 Index and the German DAX Index fell 1 percent and 1.6 percent, respectively.
In the bond market, treasuries are seeing continued weakness after the government auction of 30-year bonds drew a higher than expected yield. Subsequently, the yield on the benchmark ten-year note is currently up 15.6 basis points at 3.308 percent.
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