RTTNews - While selling pressure has waned from earlier in the session, stocks continue to see substantial weakness in early afternoon trading on Monday. The major averages remain stuck firmly in the red after showing a notable decline over the course of the morning.
The continued weakness in the markets comes as traders are doing some profit taking amid a pullback in commodities prices as well as some strength in the value of the U.S. dollar. However, the extent of the downward move may be being exaggerated by below average volume.
Some selling pressure was also generated by the release of a report from the New York Federal Reserve showing that conditions for New York manufacturers have deteriorated at a faster pace in the month of June than in the previous month.
However, in an interview with RTT News, Bruce Bittles, chief investment strategist at R.W. Baird, said he is not too concerned about the sell-off following the worse than expected manufacturing report, suggesting that the nervousness is misplaced.
The market rarely tops out on bad news, Bittles said. It's typically when a lot of enthusiasm and optimism come into the market and I suspect that will come on the heels of some better economic reports.
Bittles also said he doesn't believe the sell-off is the beginning of a broader correction in the cyclical bull market.
The major averages are currently posting steep losses, although they are off their worst levels of the day. The Dow is currently down 196.04 at 8,603.22, the Nasdaq is down 50.20 at 1,808.60 and the S&P 500 is down 23.90 at 922.31.
Most of the major sectors continue to show notable declines, with railroad stocks posting particularly steep losses in the early afternoon. The Dow Jones Railroads Index is currently down 5.9 percent, pulling back well off Friday's five-month closing high.
CSX Corp. (CSX) is helping to lead the way lower, with the railroad operator currently down 7 percent. Union Pacific (UNP) and Burlington Northern (BNI) are also posting notable losses.
Steel stocks also continue to post substantial losses, dragging the NYSE Arca Steel Index down 6.3 percent. Traders are cashing in on the recent strength in the sector amid some uncertainty about the near-term outlook for steel demand.
Significant weakness also remains visible among oil service stocks, as reflected by the 4.6 percent loss currently being shown by the Philadelphia Oil Service Index. The weakness in the sector comes as crude for July delivery is down $2.12 at $69.92 a barrel.
Among oil service stocks, Rowan Cos. (RDC) has shown a notable move to the downside after being downgraded to Underperform from Neutral by Credit Suisse. Rowan is currently down 8.4 percent, pulling back further off the eight-month high it set last Thursday.
A variety of other sectors are also under considerable selling pressure, with real estate, gold, natural gas, and networking stocks posting notable losses.
Stocks In The News
Among individual stocks, shares of Cemex (CX) are seeing considerable weakness in early afternoon trading, with the cement maker currently down 9.8 percent after ending the previous session at an eight-month closing high.
The loss by Cemex comes after the company said it has reached an agreement to sell its Australian operations to Switzerland-based building materials group Holcim Group for about 2 billion Australian dollars.
Shares of Illinois Tool Works (ITW) are also under pressure even though the industrial equipment maker raised its second quarter earnings guidance due to its decorative surfaces segment being placed back into continuing operations. Illinois Tool Works is currently down 3.1 percent.
On the other hand, shares of O2Micro (OIIM) are currently up 7.8 percent after the microchip supplier raised its second quarter revenue guidance. At its high for the session, O2Micro was at a nine-month intraday high.
In Focus: Russian Finance Minister, New York Fed Index, Geithner/Summers Op-Ed
As mentioned above, the U.S. dollar is moving higher against most major currencies, contributing to the pullback by commodities and some of the weakness on Wall Street. The greenback is benefiting from comments from Russian Finance Minister Alexei Kudrin.
Speaking on the sidelines of a meeting of the Group of Eight finance ministers in Italy, Kudrin said his country has full confidence in the U.S. dollar, adding that the dollar's role as the main reserve currency was unlikely to change in the near future.
Kudrin's comments expressing confidence in the dollar come just days after Russian President Dmitry Medvedev questioned its global status, joining China's central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
On the economic front, a report from the New York Federal Reserve showed a continued deterioration in conditions for New York manufacturers in the month of June, with the index of activity in the sector falling by much more than expected.
The New York Fed said its general business conditions index fell to a negative 9.4 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.
While the index fell by more than economists had been expecting, it remains well above the record low of negative 38.2 set in March.
Peter Boockvar, equity strategist at Miller Tabak said, Although the data reflects more stabilization at weak levels rather than improvement, the 6-month outlook rose to 47.8 from 43.8, the highest since July '07 on the hope that less bad will soon turn to good.
In other news, President Barack Obama's economic team outlined a new international approach to regulation Monday, unveiling their plan in an op-ed piece published in the Washington Post.
The landmark financial regulation plan addresses capital requirements for financial institutions, systemic risk, and the need for a more unified global approach to market regulation.
We will lead the effort to improve regulation and supervision around the world, Treasury Secretary Timothy Geithner and National Economic Council Chairman Larry Summers said.
Overall, the pair promised that the plan offers a stronger framework for consumer and investor protection. The fully detailed version of the regulatory overhaul will be released on Wednesday.
In overseas trading, most stock markets across the Asia Pacific region ended Monday's trading in the red, as traders did some profit taking. After trending higher in recent weeks, Japan's benchmark Nikkei 225 Index fell nearly 1 percent.
The major European markets also showed notable moves to the downside over the course of the trading day. The U.K.'s FTSE 100 Index fell 2.6 percent, while the French CAC 40 Index and the German DAX Index closed down 3.2 percent and 3.5 percent, respectively.
Meanwhile, treasures have benefited from the weakness among stocks, moving further off their recent lows. Subsequently, the yield on the benchmark ten-year note is down 5.9 basis points at 3.729 percent, although it has moved well off its worst level of the day.
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