U.S. Stocks Pull Back Sharply As Strong Jobs Data Adds To Interest Rate Worries

(RTTNews) - Stocks moved sharply lower in early trading on Thursday and remained firmly negative throughout the session. With the steep drop on the day, the major averages more than offset the gains posted in the previous session.

The major averages all showed notable moves to the downside on the day. The Dow slumped 339.69 points or 1.0 percent to 32,930.08, the Nasdaq plunged 152.52 points or 1.5 percent to 10,305.24 and the S&P 500 tumbled 44.87 points or 1.2 percent to 3,808.10.

The weakness on Wall Street came following the release of a report from payroll processor ADP showing private sector employment in the U.S. jumped by much more than expected in the month of December.

ADP said private sector employment shot up by 235,000 jobs in December after surging by an upwardly revised 182,000 jobs in November.

Economists had expected employment to jump by about 150,000 jobs compared to the addition of 127,000 jobs originally reported for the previous month.

While the stronger than expected job growth points to continued strength in the labor market, the data added to concerns about the outlook for interest rates.

Traders worry continued labor market tightness could encourage the Federal Reserve to continue aggressively raising interest rates in the coming months.

The Fed released the minutes of its latest monetary policy meeting on Wednesday, indicating the central bank plans to continue raising interest rates and keep rates at a restrictive level for "some time."

On Friday, the Labor Department is scheduled to release its more closely watched employment report for the month of December.

Economists currently expect employment to jump by 200,000 jobs in December after surging by 263,000 jobs in November, while the unemployment rate is expected to hold at 3.7 percent.

With the monthly jobs report looming, the Labor Department released a report this morning showing a modest decrease in first-time claims for U.S. unemployment benefits in the week ended December 31st.

The report said initial jobless claims slipped to 204,000, a decrease of 19,000 from the previous week's revised level of 223,000. Economists had expected jobless claims to come in unchanged compared to the 225,000 originally reported for the previous week.

A separate report released by the Commerce Department showed the U.S. trade deficit narrowed significantly more than expected in the month of November.

Sector News

Software stocks turned in some of the worst performances on the day, with the Dow Jones U.S. Software Index tumbling by 3.2 percent to a nearly two-month closing low.

Interest rate-sensitive commercial real estate and utilities stocks also saw considerable weakness, dragging the Dow Jones U.S. Real Estate Index and the Dow Jones Utility Average down by 2.7 percent and 2.1 percent, respectively.

Chemical stocks also showed a significant move to the downside, resulting in a 2.2 percent slump by the S&P Chemical Sector Index.

Semiconductor, transportation and banking stocks also saw notable weakness, while energy, steel and airline stocks bucked the downtrend.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Thursday. Japan's Nikkei 225 Index rose by 0.4 percent, while Hong Kong's Hang Seng Index jumped by 1.3 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the U.K.'s FTSE 100 Index climbed by 0.6 percent, the French CAC 40 Index edged down by 0.2 percent and the German DAX Index fell by 0.4 percent.

In the bond market, treasuries regained ground after seeing early weakness but still closed slightly lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by 1.1 basis points to 3.720 percent after reaching a high of 3.784 percent.

Looking Ahead

The monthly jobs report is likely to be in the spotlight on Friday, although traders are also likely to keep an eye on reports on service sector activity and factory orders.