Nasdaq Pulls Back Sharply But Dow Posts Modest Gain

(RTTNews) - Following the lackluster performance to start the week, the major U.S. stock indexes moved in opposite directions during trading on Wednesday. While the tech-heavy Nasdaq moved sharply lower, the Dow posted a modest gain.

The Nasdaq tumbled 171.52 points or 1.3 percent to 13,104.90 after ending Tuesday's trading at its best closing level in well over a year. The S&P 500 also fell 16.33 points or 0.4 percent to 4,267.52, while the Dow rose 91.74 points or 0.3 percent to 33,665.02.

The sharp pullback by the Nasdaq came after the Bank of Canada once again raised interest rates after leaving rates unchanged for two straight meetings, raising the concerns about the outlook for U.S. rates.

The Bank of Canada increased its target for the overnight rate by 25 basis points to 4.75 percent, citing stubbornly high inflation and stronger than expected economic growth.

"Canada's central bank is viewed as one of the leaders when it comes to being proactive with monetary policy," said Edward Moya, senior market analyst at OANDA. "They were the first to raise rates in 2022 and then put them on hold earlier this year."

He added, "The BOC is signaling that more rate hikes could come and that has everyone rethinking that the Fed will be done after the July hike."

The Federal Reserve is scheduled to announce its latest monetary policy decision next Wednesday, with the central bank widely expected to leave interest rates unchanged.

CME Group's FedWatch Tool is currently indicating 70.1 percent chance the Fed will leave rates unchanged next week but a 51.8 percent chance of another rate hike in July.

Meanwhile, the Dow benefited from strong gains by defensive stocks such as Caterpillar (CAT) and 3M Co. (MMM).

In U.S. economic news, a report released by the Commerce Department showed the U.S. trade deficit widened significantly in the month of April.

The Commerce Department said the trade deficit increased to $74.6 billion in April from a revised $60.6 billion in March.

Economists had expected the trade deficit to jump to $75.2 billion from the $64.2 billion originally reported for the previous month.

The wider trade deficit came as the value of exports plunged by 3.6 percent to $249.0 billion, while the value of imports surged by 1.5 percent to $323.6 billion.

Sector News

Software stocks moved sharply lower over the course of the session, dragging the Dow Jones U.S. Software Index down by 3.3 percent. The index continued to give back ground after reaching its best closing level in over a year on Monday.

Significant weakness also emerged among retail stocks, with the Dow Jones U.S. Retail Index falling by 1.4 percent after ending Tuesday's trading at a nearly nine-month closing high.

Meanwhile, energy stocks saw substantial strength on the day, driving the Philadelphia Oil Service Index and the NYSE Arca Oil Index up 3.4 percent and 2.9 percent, respectively.

The rally by energy stocks came amid an increase by the price of crude oil, as crude for July delivery climbed $0.79 to $72.53 a barrel.

Transportation stocks also saw considerable strength, resulting in a 2.5 percent surge by the Dow Jones Transportation Average. The average ended the session at its best closing level in well over a month.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region turned in another mixed performance during trading on Wednesday. Japan's Nikkei 225 Index tumbled by 1.8 percent, while Hong Kong's Hang Seng Index advanced by 0.8 percent.

Meanwhile, the major European markets moved slightly lower on the day. While the German DAX Index dipped by 0.2 percent, the French CAC 40 Index and the U.K.'s FTSE 100 Index both edged down by 0.1 percent.

In the bond market, treasuries came under pressure after closing roughly flat for two straight sessions. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, advanced 8.5 basis points to 3.784 percent.

Looking Ahead

Trading on Thursday may be impacted by reaction to the Labor Department's report on initial jobless claims in the week ended June 3rd.