Stocks are down by steep margins in mid-morning trading on Tuesday, as an unexpected drop in second quarter productivity has prompted early selling in the markets. Meanwhile, there was little reaction to the day's inventories data and traders are now awaiting the Federal Reserve's interest rate decision this afternoon.
In recent news on the economic front, the Commerce Department said that wholesale inventories edged up by 0.1 percent in June following a 0.5 percent increase in May. Economists had been expecting wholesale inventories to show a more significant increase of about 0.4 percent.
Initial weakness came after the Labor Department reported that labor productivity fell by 0.9 percent in the second quarter following an upwardly revised 3.9 percent increase in the first quarter. Economists had expected productivity to edge up by 0.1 percent compared to the 2.8 percent growth that had been reported for the previous quarter.
A jump in hours worked contributed to the unexpected decrease in productivity, which is a measure of output per hour. The decrease also follows five quarters of strong productivity growth.
Meanwhile, the report also showed that unit labor costs rose by 0.2 percent in the second quarter compared to a revised 3.7 percent decrease in the first quarter. Labor costs had been expected to increase by about 1.4 percent.
This afternoon, all eyes will be on the Fed's much awaited policy statement at about 2:15 p.m. ET. With interest rates widely expected to be kept unchanged, the focus will be on the Fed's assessment of economic conditions and any hints to further quantitative easing measures.
Overseas, China's trade surplus for July rose to an 18-month high of $28.7 billion compared to a surplus of $20.7 billion in June. A sharp decline in imports due to some tightening measures implemented domestically led to the higher surplus.
On the corporate front, Research In Motion's (RIMM) BlackBerry messenger services will not be banned by Saudi Arabia's Communication and Information Technology Commission amid positive developments in the completion of regulatory requirements by the Smartphone maker.
The major averages have moved well off their worst levels of the day in recent trading but remain sharply lower. The Dow is down 110.88 points or 1 percent at 10,587.87, the Nasdaq is down 34.84 points or 1.5 percent at 2,270.85 and the S&P 500 is down 12.74 points or 1.1 percent at 1,115.05.
Sector News
Semiconductor stocks are among the morning's worst performers, driving the Philadelphia Semiconductor Index down by 2.8 percent. The index has sunk to its lowest intraday level in just over one week amid a downgrade of sector bellwether Intel.
Steel stocks are also under pressure, with the NYSE Arca Steel Index posting a loss of 2.7 percent, pulling back off of yesterday's three-month closing high.
Electronic storage, railroad, housing and oil service stocks are also posting notable losses amid a broad based sell-off.
Stocks Driven By Analyst Comments
Intel is notably lower after Robert W. Baird downgraded the stock from Outperform to Neutral. The broker also lowered its target on the stock from $30 to $22. Shares are currently down by 3.9 percent, setting a one-month intraday low.
Northrop Grumman is also on the downside after analysts at FBR Capital Markets downgraded the stock from Outperform to Market Perform. The stock is down by 2.4 percent, pulling back off of the six-week closing high set on Monday.
source:Investorshub
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