Market Falls on Poor Data, Anticipation of Moody's Downgrade
Financial markets moved lower on Thursday, as poor economic data coupled with speculation of a forthcoming financial ratings downgrade prompted a broad-based sell-off of risk assets. In the last hour of trade on Thursday, the Dow Jones Industrial Average was trading down around 200 points and stocks were sitting near session lows. The S&P 500 shed more than 23 points, or 1.74%, while the Nasdaq was sitting on losses of nearly 2%.
The Philadelphia Fed survey showed that manufacturing activity fell sharply in the mid-Atlantic region for June. The reading came in at -16.6 versus -5.8 in May, the lowest reading since August 2011. Economists surveyed had anticipated the index would increase to -0.2. Other economic data showed that the Eurozone's private sector shrank at its fastest pace in three years in June. Intitial and continuing jobless claims came in above economists' consensus estimates, but initial claims fell from May while continuing claims held steady. Another report showed that sales of previously owned homes fell 1.5 percent in May versus April.
A client note from Goldman Sachs may have accelerated bearish sentiment. The investment bank recommended that clients short the S&P 500 index with a downside target of 1,285, arguing that soft U.S. economic reports "provides further evidence that weakness has extended into June."
The losses in the stock market are also being reflected in sentiment in the commodities market. Crude oil, for example, is continuing its recent plunge on Thursday, and had lost more than 3%.
Losses have also accumulated in gold futures, with the precious metal falling 3% to trade near $1,567. Copper futures were also lower as a result of souring sentiment about the state of both the global and domestic economies. Copper traded down more than 2.50% to $3.229. Other measures of risk appetite are also reflecting a fearful market atmosphere. Investors have been buying U.S. Treasuries as they shift money out of riskier asset classes. The iShares Barclays 20+ Year Treasury Bond ETF (NYSE: TLT) had risen around 0.66% to $126.82 and the yield on the 10-Year Note had fallen 4.1 basis points to 1.62%.
The VIX index, a widely watched barometer of market fear, surged almost 14% on the session to 19.60. In the stock market, high risk sectors are getting hit particularly hard after being en vogue heading into yesterday's FOMC statement. Basic materials, for example, have lost 3.32% and energy shares are down nearly 4%. Technology is also a standout on the downside, falling 2.50%.
Traders are also keeping a close eye on the EUR/USD pair as the European debt crisis continues to take center stage in terms of systemic global risk. The EUR/USD was ticking 0.66% lower to $1.2585 heading into the close of equity trading.
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