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Benchmarks suffered their second-worst trading day of the year after global economic readings dampened investors’ sentiment. Indices were dealt a blow right at the start as data from Europe and China highlighted difficult economic conditions. Things were not bright even on the home front; initial claims data was not sufficiently encouraging and the Federal Reserve Bank of Philadelphia reported a slump in U.S. mid-Atlantic region manufacturing activity.
The Dow Jones Industrial Average (DJI) dropped a whopping 250.82 points or 2.0% to end at 12,573.57. The Standard & Poor 500 (S&P 500) plunged 2.2% to close yesterday’s trading session at 1,325.51. The tech-laden Nasdaq Composite Index sank 2.4%, by 71.36 points to finish sharply lower at 2,859.09. Investor fears were also reflected by the fear-gauge CBOE Volatility Index (VIX) as it soared 16.5% to close at 20.08. Consolidated volumes on the New York Stock Exchange, the American Stock Exchange and Nasdaq were roughly 7 billion shares, lower than last year's daily average of 7.84 billion. Decliners outpaced the advancing stocks on the NYSE; as for every four stocks that declined, only one stock could move up.
The global economic situation has been beset with many concerns over the past several months. The euro-zone has been a constant bother with its lingering debt woes and China has often released disappointing data that reflects the sorry state of its economy. Economic readings have been far from encouraging in the U.S. as well. The combination of these factors is reflected in the flagging global economy. Such was the case even yesterday, as all these factors combined to drag benchmarks to their second-worst showing of the year.
China's manufacturing activity has now plunged to the lowest level in seven months. The reading on manufacturing purchasing managers' index (PMI) was released by HSBC, which came in at 48.1 in June, down from 48.4 in May. Anything below 50 suggests a contraction and such news from world’s second-largest economy significantly affected investor sentiment.
Meanwhile, business activity continued its downslide for the fifth straight month, intensifying investors’ fears. Financial information and services firm Markit said the private sector had shrunk in the 17-nation Euro block at its fastest pace in three years and the contraction had not spared even France and Germany. Euro Zone’s Flash Composite Purchasing Manager's Index was down to 46.0, the ninth such decline in 10 months.
While global data dampened investor sentiment, economic readings on the home front were also far from encouraging. Seasonally adjusted initial claims dropped by a mere 2,000 to move to 387,000 in the week ending June 16, from the prior week's revised figure of 389,000. The decline even failed to beat consensus expectations, which had predicted a decline to 383, 000.
More bad news greeted investors when the Philadelphia Fed released data on U.S. mid-Atlantic region’s manufacturing activity later during the day. The Business Outlook Survey noted that ‘general activity, new orders, shipments, and average work hours were all negative this month, suggesting overall declines in business’. Coming to the reading itself, in its report the Philadelphia Fed said: “The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, fell from a reading of ‐5.8 in May to ‐16.6, its second consecutive negative reading”. The drop to a negative 16.6 was also contradicted consensus expectations of an increase to 1.4.
Amidst these negatives, he U.S. crude prices moved down to their lowest level in almost nine months, slumping to $78.20 per barrel. Energy Select Sector SPDR (XLE) and energy stocks including Chevron Corporation (NYSE:CVX), ConocoPhillips (NYSE:COP), Marathon Petroleum Corp (NYSE:MPC), Marathon Oil Corporation (NYSE:MRO), Occidental Petroleum Corporation (NYSE:OXY) and Transocean Ltd. (NYSE:RIG) slumped 3.5%, 3.1%, 3.4%, 5.6%, 6.1% and 6.2%, respectively.