RTTNews - Stocks are extending their stay in the red in early afternoon trading on Tuesday, as traders continue to cash in on recent gains, largely shrugging off the day's economic data. The major averages are all in negative territory, taking another breather following last week's rally.
On the economic front, 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.
Separately, 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.
Traders are tracking 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.
The major averages have moved well off their worst levels of the day, although they remain stuck in negative territory. The Dow is currently down 88.87 at 9,249.08, the Nasdaq is down 23.62 at 1,968.93 and the S&P 500 is down 11.82 at 995.28.
Banking stocks are posting steep losses in early afternoon trading, as reflected by the 4.4 percent loss being posted by the Kbw Bank Index. The index is pulling back off of its best closing level in over seven months.
The index is being dragged lower by shares of Zions Bancorporation (ZION), which are plunging by 20.3 percent on the day. With the decline, the stock is backing away from a three month closing high set on Monday.
Real estate stocks are also continuing their retreat, although by more moderate margins. The Morgan Stanley REIT Index is sliding by 3.1 percent, continuing to retreat from the more than nine-month closing high set last Friday.
Steel and oil service stocks are also pulling back sharply on the day, with the NYSE Arca Steel Index and the Philadelphia Oil Service Sector Index falling by 2.6 percent and 2.3 percent, respectively. Notably, the steel index is pulling back off of its best closing level in ten months
Airline, electronic storage, natural gas, networking and semiconductor stocks are also moving lower, reflecting the weakness in a broad variety of equity segments on the day.
Meanwhile, some biotechnology and health insurance stocks are continuing to buck the day's downtrend, rising by modest margins.
Stocks In The News
Fossil Inc. (FOSL) is plummeting in early afternoon trading after the company revealed second quarter revenues of $315.9 million, falling short of analyst estimates of $320.99 million. The firm also issued third quarter revenue and earnings guidance that fell short of forecasts. The stock has plunged by 11.2 percent, retreating from a ten-month high set on Monday.
Bunge Ltd. (BG) is also retreating after the company revealed plans to issue 10 million common shares, sparking concern over share dilution. The stock is down by 6 percent, backing off of a ten-month high reached late last week.
On the other hand, shares of Avanir Pharmaceuticals (AVNR) are rising after the firm announced Tuesday morning that Zenvia met its primary efficacy endpoint in the treatment of pseudobulbar affect in a Phase III trial. The stock has surged by 42.9 percent, climbing to its best level since April of 2007.
In Focus: Economic, Corporate News
As mentioned above, the Labor Department 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.
The report also revealed 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.
In a separate report, the Commerce Department said 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.
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.
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 are seeing strong gains amid another pullback on Wall Street. Subsequently, the yield on the benchmark ten-year note is trading at 3.717 percent, posting a loss of 5.4 basis points.
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