A contraction in U.S. manufacturing activity threatened to dent
investor sentiment which had grown stronger following the European
deal. But hopes of economic stimulus from the central bank lifted
most of the benchmarks into the green. However, the Dow missed out
on a closing in positive territory though it recouped the day's
losses.
The Dow Jones Industrial Average (DJI) slipped 0.1% to close
slightly lower at 12,871.39. The Standard & Poor 500 (S&P
500) edged up 0.3% and finished yesterday's trading session at
1,365.51. The tech-laden Nasdaq Composite Index gained 0.6% and
ended at 2,951.23. The fear-gauge CBOE Volatility Index (VIX)
dropped 1.6% and settled at 16.80. Consolidated volumes on the New
York Stock Exchange, the American Stock Exchange and Nasdaq, were
roughly 6.1 billion shares, well short of last year's daily average
of 7.84 billion shares. Advancers outpaced the declining stocks on
the NYSE; as for 69% of stocks that gained, 29% stocks closed
lower.
The report that figured prominently in yesterday's proceedings
was the one on economic activity in the manufacturing sector by the
Institute for Supply Management. According to the report: "The PMI
registered 49.7 percent, a decrease of 3.8 percentage points from
May's reading of 53.5 percent, indicating contraction in the
manufacturing sector for the first time since July 2009, when the
PMI registered 49.2 percent. The New Orders Index dropped 12.3
percentage points in June, registering 47.8 percent and indicating
contraction in new orders for the first time since April 2009, when
the New Orders Index registered 46.8 percent". The figure was also
below consensus estimates of 52%.
The ISM Manufacturing Index is based on surveys of 300
purchasing managers nationwide representing 20 industries regarding
manufacturing activity. It's considered as the most important of
all manufacturing indices. Therefore, movement in this index plays
an instrumental role and investors do keep a keen eye on it. Thus,
the lower-than-expected reading was sure to dent sentiment. But the
larger concern was that economic activity in the manufacturing
sector recorded its first contraction since July 2009.
Worried by the contraction in the manufacturing activity,
benchmarks opened in the red and later swung between small gains
and losses. The data seemed to have unnerved investors initially
and threatened to wash out the positives carried over from Friday,
sparked off by the "breakthrough" deal reached at the European
Summit. However, but for the Dow, benchmarks made a rebound as many
market onlookers grew hopeful about fresh economic stimulus by the
central bank. It is now popularly believed that dismal economic
readings will pave the way for the Federal Reserve to come up with
new measures to bolster the economy.
Thus, hopes for economic stimulus helped benchmarks rebound from
the day's losses. However, industrials remained one of the biggest
losers with the Industrial Select Sector SPDR (XLI) losing 0.9%.
Among the declining stocks, Graco Inc. (NYSE:
GGG
), Deere & Company (NYSE:
DE
), AGCO Corporation (NYSE:
AGCO
), IDEX Corporation (NYSE:
IEX
), 3M Co (NYSE:
MMM
) and Terex Corporation (NYSE:
TEX
) lost 1.4%, 0.5%, 2.7%, 0.5%, 0.4% and 3.4%, respectively.
Staying with manufacturing, things were not bright on the
European and Chinese front as well. Financial information services
company Markit not only noted painted a gloomy picture of
manufacturing activity in Europe, but it also warned about
factories preparing for the worst. Chris Williamson, Chief
Economist, Markit, said: "Companies are clearly preparing for worse
to come, cutting back on both staff numbers and stocks of raw
materials at the fastest rates for two-and-a-half years". As for
the manufacturing Purchasing Managers' Index (PMI) he commented:
"The PMI suggests that the goods-producing sector contracted by
around 1 percent in the second quarter, with this steep rate of
decline looking set to accelerate further as we move into the
second half of the year". China too recorded a dip in ifactory
activity and the HSBC Purchasing Managers' Index (PMI) was down to
48.2 after seasonal adjustments. The index is now at at its lowest
since November 2011.
Coming back to the domestic arena, a report on construction
spending was much more promising. The U.S. Census Bureau of the
Department of Commerce reported that construction spending moved up
0.9% from the revised April estimate of $822.5 billion to a
seasonally adjusted annual rate of $830.0 billion in May 2012. The
increase was significantly higher than consensus estimates which
had predicted a rise of 0.1%.
AGCO CORP (AGCO): Free Stock Analysis Report
DEERE & CO (DE): Free Stock Analysis Report
GRACO INC (GGG): Free Stock Analysis Report
IDEX CORP (IEX): Free Stock Analysis Report
3M CO (MMM): Free Stock Analysis Report
TEREX CORP (TEX): Free Stock Analysis Report
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