By Ellie Ismailidou and Sara Sjolin, MarketWatch

ISM services index disappoints; Yahoo, Chipotle tumble on weak earnings

U.S. stocks turned negative Wednesday morning, erasing gains they scored at the open, led by sharp losses for financial stocks on renewed fears of slowing economic growth.

The S&P 500 lost 21 points, or 1.1%, to 1,882, led by sharp losses in the financials and consumer discretionary. sectors. The Dow Jones Industrial Average tumbled 120 points, or 0.7%, to 16,034. Meanwhile, the Nasdaq Composite shed 68 points, or 1.5%, to trade at 4,452.

The market seemed to break Wednesday its recent strong correlation with the gyrations in oil prices, as the main stock indexes tumbled despite a rebound of more than 3% by oil futures .

The financial sector was the worst performer on the S&P 500, down 2.5% on the day, dragged down by sharp declines in the banking sector, featuring giants like Morgan Stanley (MS), Citigroup Inc. (C) and Bank of America Corporation (BAC)

Worries about the banking sector are rooted in concerns about how banks' balance sheets are affected by negative interest rates in the eurozone as well as by widening credit spreads and rising default rates in the U.S., said Mike Antonelli, equity sales trader at R.W Baird & Co.

Furthermore, a flurry of weaker-than-expected economic data rekindled fears of a slowdown in the U.S. economy, weighing on sentiment. The 10-year Treasury yield, the Treasury market's benchmark , tumbled to a one-year low, reflecting the risk-off sentiment and worries over an economic slowdown.

The U.S. service sector, which includes companies in the retail, banking and health care sectors, grew in January at the slowest pace in almost two years (http://www.marketwatch.com/story/biggest-part-of-us-economy-not-growing-as-fast-ism-finds-2016-02-03), the Institute for Supply Management said Wednesday.

Separately, a private-sector employment report by payroll-services firm ADP pointed to solid job growth (http://www.marketwatch.com/story/private-sector-hiring-points-to-solid-job-growth-despite-market-turmoil-adp-2016-02-03) in January but weaker than the previous month.

Economists use ADP's private-sector data to get a feeling for the Labor Department's employment report, which will be released Friday and covers government jobs in addition to the private sector.

"Bottom line, no job growth in manufacturing and job losses in energy are certainly being offset by other areas of the economy, particularly services. This begs the question over sustainability," said Peter Boockvar, chief market analyst at The Lindsey Group, in emailed comments.

Wednesday's stock selloff came after Wall Street ended sharply lower on Tuesday (http://www.marketwatch.com/story/us-stocks-dow-futures-drop-by-more-than-100-points-hurt-again-by-oils-slide-2016-02-02), as investors unloaded energy and financial stocks following a selloff in crude-oil futures, which settled below $30 a barrel.

The markets is "in the midst of some midstream adjustments," said James Meyer, chief investment officer at Tower Bridge Advisors, in emailed comments. These adjustments result in "volatility without direction. Markets go up 2% one day and down 2% the next. There will be times in this transition period when markets might move 10% or more in one direction," he said.

Oil rebound: Oil prices moved higher on Wednesday. West Texas Intermediate crude reclaimed the $30-a-barrel mark, gaining 1.6%. Brent oil rose 1.9% to $33.34 a barrel.

Augustin Eden, research analyst at Accendo Markets, said in a note the oil bounce may just be consolidation ahead of further declines, as the drivers for the market remain the same.

"While we look to midweek U.S. crude inventory data for direction on the oil price and thus equity market strength. Note however that hawkish U.S. Fed chat praising stateside economic strength (despite oil woes) may push investors to concentrate on fundamentals a bit more, rather than stock markets," he said.

Movers and shakers: Shares of Yahoo! Inc. (YHOO) dropped 7.7% after the Internet services company late Tuesday reported a loss for the fourth quarter (http://www.marketwatch.com/story/yahoo-beats-on-sales-and-axes-workforce-by-15-2016-02-02).

Chipotle Mexican Grill Inc. (CMG) lost 7% after the Mexican fast food chain late Tuesday posted its first-ever sales decline (http://www.marketwatch.com/story/chipotle-posts-first-ever-sales-decline-2016-02-02-164855353).

U.S.-listed shares of chemical company Syngenta AG (SYNN.VX) climbed 2.1% after China National Chemical Corp. offered to buy the Swiss firm for $43 billion in cash (http://www.marketwatch.com/story/chemchina-to-buy-syngenta-in-43-billion-deal-2016-02-03).

Merck & Co. Inc. (MRK) fell 3% after the drugmaker said fourth-quarter sales fell short of estimates (http://www.marketwatch.com/story/merck-tops-profit-estimates-but-sales-fall-slightly-short-2016-02-03).

Comcast Corp. (CMCSA)shares gained 2.3% after the company reported increased revenue (http://www.marketwatch.com/story/comcast-q4-revenue-grows-as-2015-films-flourish-cable-sub-losses-slow-2016-02-03).

Mondelez International Inc. (MDLZ) lost 5.6% after the company swung to a fourth-quarter loss (http://www.marketwatch.com/story/mondelez-posts-loss-on-venezuela-related-charges-2016-02-03), hurt by a big one-time charge related to its Venezuela business.

Other markets: Stocks in Asia closed sharply lower, with Japan's Nikkei down 3.2%. European markets were also lower (http://www.marketwatch.com/story/european-stocks-tilt-lower-as-focus-turns-to-us-jobs-figures-2016-02-03), led by losses for banks. The ICE dollar index was down 0.2%. Metals rose across the board, with gold up 0.3%.

 

(END) Dow Jones Newswires

February 03, 2016 11:03 ET (16:03 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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