U.S. stocks sank more than 2% Monday, their worst decline since last June, as a couple of economic reports showed slowdowns in manufacturing and auto sales last month. The Dow dropped 2.1%, the S&P 500 lost 2.3% and NASDAQ, which prior to today had held up best to selling pressures, fell 2.6% on the day. Monday’s stock sell-off was global, with Europe’s markets losing about 1.5% on average (Euro Dow) while Tokyo was off 2.0% and India’s Sensex dropped 1.5%. Shanghai and Hong Kong were closed for the New Year holiday.
Today’s market weakness traveled from West to East, or more accurately, from the U.S. to the rest of the world – and not from emerging markets, as has been the case in recent weeks. While U.S. share prices were down modestly soon after the open, the major damage was done following the 10:00 ISM purchasing managers’ survey for manufacturing. The January reading of 51.3 was down sharply from the 56.5-57 readings of October-December and below the Street’s expectation of 56. New orders dropped like a rock last month, and production and employment readings were also sharply lower – although all of them were above the 50 mark, which separates expansion from contraction. In fact, virtually all of the component series were lower with the exception of prices, which rose to 60.5 in January from 53.5 the prior month.
The ISM diffusion index (PMI), at 51.3, was the lowest since last May’s reading of 50. The Institute for Supply Management’s Bradley Holcomb said that “A number of comments from the panel (the business survey committee) cite adverse weather conditions as a factor negatively impacting their businesses in January, while others reflect optimism and increasing volumes in the early stages of 2014.” The same reason was cited by automakers in reporting their soft January sales; total light vehicle sales ran at a 15.2 million annual rate last month, down slightly from December’s 15.3 million unit level and the Street’s 15.7 million unit target.
Bonds rallied on the weakness in stocks, with the 10-year Treasury note gaining 20/32nds in price. Its yield fell to 2.57%, where it is down more than 45 basis points from the year-end 2013 rate of 3.04%. The dollar lost 0.3% against the euro and a little more than 1% against the yen. Gold and silver prices rose, while energy futures prices were mostly lower. VIX rose 3 points to 21.4, the highest level since December 2012, an indication of the market’s risk-on mode. Two weeks ago it was reading 12. Welcome to your first market correction, Janet Yellen. The S&P 500 is now down 5.8% and the Dow is off 7.2% from their year-end highs.
Reports/dates/facts/links to watch for over the next week:
- February 4: Factory orders for December.
- February 5: ADP national employment report for January; ISM non-manufacturing index for January.
- February 6: Weekly unemployment claims.
- February 7: Payrolls and unemployment report for January.
Copyright © 2014 by Wright Investors’ Service, Inc. The views expressed in this blog reflect those of Wright Investors’ Service, Inc. and are subject to change. Statements and opinions therein are based on sources of information believed to be accurate and reliable, but Wright Investors’ Service, Inc. makes no representations or guarantees as to the accuracy or completeness thereof. These views should not be relied upon as investment advice.