Disappointing U.S factory data and investor apprehensions
about the Fiscal Cliff outweighed China's positive economic
report and dragged the benchmarks into negative territory.
Markets opened higher on Monday after China said manufacturing
activity expanded in November. However, manufacturing activity in
the U.S. declined in November to its lowest level in more than
three years. The materials sector was the biggest loser among the
S&P 500 industry groups.
The Dow Jones Industrial Average (DJI) lost 0.5% to close the day
at 12,965.60. The Standard & Poor 500 (S&P 500) shed 0.5%
to finish yesterday's trading session at 1,409.46. The tech-laden
Nasdaq Composite Index dropped 0.3% to end at 3,002.20. The
fear-gauge CBOE Volatility Index (VIX) jumped 4.9% to settle at
16.64. Consolidated volumes on the New York Stock Exchange,
American Stock Exchange and Nasdaq were roughly 5.58 billion
shares, significantly lower than last year's daily average of
7.84 billion shares. Declining stocks outpaced advancers on the
NYSE; as for 58% stocks that declined, 38% stocks moved higher.
Benchmarks commenced Monday's trading on a positive note boosted
by China's manufacturing data. However, they lost out on initial
gains after U.S manufacturing data contracted unexpectedly in
November. During the last two weeks, markets have been moving on
either side, reacting to developments regarding the ongoing
negotiations on the Fiscal Cliff issue.
The unexpected drop in the ISM manufacturing index emerged as the
major factor affecting markets yesterday. According to the
Institute for Supply Management, the ISM manufacturing index
dropped 2.2% to 49.5 from October's reading of 51.7. This was
below consensus estimates of 51.3. ISM manufacturing index
declined after two months of modest growth and is now down to its
lowest level since July 2009. However, the overall economy
expanded for the 42nd consecutive month. New orders plunged 3.9%
to 50.3 in November from 54.2 in October, whereas productions
index gained 1.3% to 53.7. The employment index plunged 3.7% to
48.4 in November.
Moreover, investor apprehensions continued as U.S law makers are
yet to seal a deal regarding the impending Fiscal Cliff, which
will take effect in less than four weeks if Congress fails to
reach a deal. House Speaker John Boehner and House Republicans
have given a new proposal to President Barack Obama. Republicans
proposed raising $800 billion in additional tax revenue. The plan
also includes reducing $600 billion from health care programs and
cutting $300 billion from both other mandatory spending and
These discouraging factors negated positive domestic housing data
and China's manufacturing report. In contrast, construction
spending increased to a seasonally adjusted annual rate of $872.1
billion from the revised September estimates of $860.4 billion.
Private construction spending increased 1.6% to a seasonally
adjusted annual rate of $592.1 billion from the revised September
estimate of $582.7 billion. Public construction also increased in
October to a seasonally adjusted annual rate of $280.1 billion
from the revised September figure of $277.7 billion.
Coming to China's report, the National Bureau of Statistics and
China Federation of Logistics and Purchasing reported that
China's Purchasing Managers' Index increased to 50.6 in November.
China's factory activity expanded for the first time in more than
a year. The world's second-largest economy's manufacturing
activity was boosted by an increase in new orders and export
Meanwhile, Greece said it will spend $13 billion to buy back
privately-held bond at a huge discount to reduce its debt burden.
This condition was imposed by Greece's international lenders in
order to obtain its next installment of a bailout loan. On the
other hand, Spain has requested for more than $50 billion of
European funds to bailout its banking sector.
The Materials Select Sector SPDR (XLB) lost 1.8% and was the
biggest loser among the S&P 500 industry groups. Stocks such
as E I Du Pont De Nemours And Co (NYSE:
), The Dow Chemical Company (NYSE:
), PPG Industries, Inc. (NYSE:
), Eastman Chemical Company (NYSE:
) and FMC Corporation (NYSE:
) plunged 1.7%, 3.0%, 2.7%, 1.4%, and 2.8%, respectively.
DU PONT (EI) DE (DD): Free Stock Analysis
DOW CHEMICAL (DOW): Free Stock Analysis
EASTMAN CHEM CO (EMN): Free Stock Analysis
FMC CORP (FMC): Free Stock Analysis Report
PPG INDS INC (PPG): Free Stock Analysis
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