Exchange traded fund investors dumped high-growth ETFs in
favor of defensive sectors Thursday on news that unemployment
lines are longer than expected and manufacturers are making less
stuff. The market was also disappointed in China's manufacturing
activity, which declined in September for the 11th consecutive
IShares DJ Transportation Average Index (
) gapped down 3.09% asNorfolk Southern (
) crashed 9.66%. The rail operator preannounced weak
third-quarter earnings and dragged down its peers with it.
IYT has undercut both its 50- and 200-day moving averages,
which is very bearish. Its weakness is a bad omen for the market,
according to Dow Theory, which contends that a market's uptrend
has to be confirmed by transportation stocks. IYT failed to make
new highs along with the market this month. It's been trading in
a sideways range since February.
SPDR S&P Semiconductor (
), down 2.39%, broke below its 200-day moving average. This marks
a very bearish development for components that are found in
nearly all electronic goods from dishwashers to iPods.
Among the few gainers,SPDR S&P Pharmaceuticals (
), which gained 0.51%.Utilities Select Sector SPDR (
) andConsumer Staples Select Sector SPDR (XLP) all rose about
0.5%. This suggests that investors are opting for steady-eddy,
safe-haven sectors that aren't dependent on economic growth and
that they're skeptical of speculative sectors dependent on
"In short, investors are fearful of the persistent slow rate
of economic growth in the U.S., and cautious comments from
investing gurus like Bill Gross and Jeremy Grantham, both of whom
are forecasting lower-than-historical rates of return across
equities for the foreseeable future, are influencing investors'
willingness to take on aggressive equity positions," said Alan
Zafran, a partner at Luminous Capital in Menlo Park, Calif. "With
limited real income growth among U.S. consumers over the past
several years, Americans are less focused on life's luxuries like
travel and shopping sprees and spending more of their precious
dollars on vices such as tobacco and alcohol."
SPDR S&P 500
(SPY) let up 0.16% to 146.46 to hold near a five-year high.
PowerShares QQQ (QQQ), tracking the 100 largest nonfinancial
stocks on the Nasdaq, eased 0.23% to 70.24, near an 11-year
SPDR Dow Jones Industrial Average (DIA) was flat.
"In light of the Nasdaq's 8% move in August and September,
some market participants are looking for an excuse to take some
chips off the table," said Kevin Marder, principal at Marder
Investment Advisors in Los Angeles. "Thursday's disappointing
manufacturing number from China and the weak U.S. jobless claims
figure provided some players with a reason to sell."
Birds-Eye View Of The Economy
Some 382,000 people filed for unemployment benefits last week,
according to the Labor Department, suggesting the labor market is
weakening. That's 3,000 fewer than last week but economists
expected to see 375,000 jobless claims. The four-week moving
average rose to 377,750 last week from 375,750.
"One week does not establish a new uptrend," Jim O'Sullivan,
chief U.S. economist at High Frequency Economics in Valhalla,
N.Y., wrote. "At a minimum, there is no sign yet of the
'substantial' improvement in the labor market Fed officials are
trying to generate."
The index of U.S. leading economic indicators eased 0.1%
month-over-month in August, matching economists' forecasts. It
rose 0.5% in July. It has slowed considerably this year, showing
that economic growth is decelerating but not collapsing. The LEI
improved at an annual rate of 0.6% the first half of the year
after rising 2.9% last year. The measure put out by the
nongovernmental Conference Board is based on 10 major economic
variables -- including unemployment, manufacturing and inflation.
It's used to forecast future economic activity.
The Philadelphia Fed manufacturing survey shows output in the
Philly region contracted for a fifth straight month. It improved
to a -1.9 from a -7.1 but a little higher than expectations of
-4.5. Readings less than zero signal shrinkage.
"In a post (quantitative) easing environment, bad news is now
simply bad and no longer a harbinger of policy shifts to come,"
Waverly Advisors wrote in its daily client note.
In China, the HSBC Flash China Purchasing Managers' Index
(PMI) registered at 47.8, weaker than forecast. Readings below 50
It's "strengthening the perception that the current round of
stimulus has not been able to offset contracting external demand
sufficiently to sustain manufacturing activity levels," Waverly
"The recent easing measures should be working to lead to a
modest improvement from Q4 onwards," HSBC wrote in a note.
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