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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 discretionary spending.
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 demand.
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:DD), The Dow Chemical Company (NYSE:DOW), PPG Industries, Inc. (NYSE:PPG), Eastman Chemical Company (NYSE:EMN) and FMC Corporation (NYSE:FMC) plunged 1.7%, 3.0%, 2.7%, 1.4%, and 2.8%, respectively.