Weaker-than-expected domestic manufacturing data hammered benchmarks yesterday and the markets witnessed their worst selloff in many months. Nine of S&P 500’s industry groups slumped, with this index along with the Dow suffering their worst declines since June 20. Nasdaq had its biggest single-day decline since June 1. The decline on the first trading session of February came right after benchmarks had suffered in January their worst monthly performance in over a year.
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The Dow Jones Industrial Average (:DJI) slumped 326 points, or 2.1%, to 15,372.80. The Standard & Poor 500’s lost 2.3% to end sharply lower at 1,741.89. The tech-laden Nasdaq Composite Index plunged almost 107 points, or 2.6%, and closed at 3,996.96. The fear-gauge CBOE Volatility Index (:VIX) soared 16.5% to settle at 21.44. The decline was also a result of heavy volumes as roughly 9.46 billion shares changed hands on the domestic exchanges, higher than January’s average of 6.94 billion. The decliners on the NYSE far outpaced the advancing stocks; as for 83% stocks that lost, only 15% could finish in the green.
Benchmarks’ heavy fall yesterday took them below key technical levels. The S&P 500 is now trading below the significant resistance level of 1,775. It hit its lowest level since Oct 17. Moreover, it has now lost 5.8% since hitting a high of 1,848.38 on Jan 15.
The Dow is hovering below its 200-day moving average and yesterday’s triple-digit decline was the seventh such instance this year. It was the first time since Dec 28, 2012 that the Dow closed below its 200-day moving average. The Nasdaq saw the biggest single-day selloff since Jun 1 last year.
The dismal manufacturing growth was largely blamed for the beating the benchmarks took yesterday. The Institute for Supply management reported its January PMI had dropped 5.2 percentage points from December’s adjusted reading of 56.5% to 51.2%. The drop to 52.1% in January was in sharp contrast to economists’ expectation of an increase to 56.1%. The ISM Manufacturing Index is based on surveys of 300 purchasing managers nationwide representing 20 industries regarding manufacturing activity. A drop in such a key index of the world’s largest economy unnerved investors immediately.
Separately, the New Orders Index declined 13.2% from December to 51.2% in January. The Production Index stood at 54.8%, plunging 6.9 percentage points from December's seasonally adjusted reading of 61.7%.
This dismal data further intensified other concerns that the markets are dealing with. Through January, and largely during the second half, markets were witness to concerns from China and emerging markets. While China’s manufacturing sector showed a contraction, emerging market currencies suffered their worst selloff in five years. On top of this, the Federal Reserve’s decision of another $10 billion cut to the economic stimulus plan dealt a severe blow to the markets.
For January, the blue-chip index plunged 5.3%, S&P 500 was down 3.6% and Nasdaq ended the month with 1.7% decline. This was the blue-chip index’ worst start since 2009. The S&P 500’s monthly decline was the worst start to a year since 2010.
Coming back to yesterday’s events, consumer discretionary and industrial sectors were among the biggest losers. The Consumer Discretionary Select Sector SPDR (XLY) was down 2.6% and stocks such as Amazon.com Inc. (NASDAQ:AMZN), Comcast Corporation (NASDAQ:CMCSA), The Walt Disney Company (NYSE:DIS) and The Home Depot, Inc. (NYSE:HD) dropped 3.5%, 3.1%, 3.6% and 2.3%, respectively.
The Industrial Select Sector SPDR (XLI) was down 2.8% and key stocks including General Electric Company (NYSE:GE) (3.1%), United Technologies Corp. (NYSE:UTX) The Boeing Company (NYSE:BA) and 3M Company (NYSE:MMM) declined 3.1%, 3.4%, 1.7% and 3.4%, respectively.
Read the analyst report on AMZN
Read the analyst report on CMCSA
Read the analyst report on DIS
Read the analyst report on HD
Read the analyst report on GE
Read the analyst report on UTX
Read the analyst report on BA
Read the analyst report on MMM
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