Stocks Decline on Disappointing Data
U.S. stocks closed the trading session lower on the heels of some disappointing regional manufacturing activity reports and as pending home sales missed expectations. The data kicked off a heavy week for the domestic economic calendar, with the manufacturing sector set to remain in focus tomorrow with the release of reports from ISM and Markit.
Treasuries were mixed, crude oil prices were lower and the U.S. dollar and gold were higher.
The Dow Jones Industrial Average declined 79 points (0.4%) to 17,720
The S&P 500 Index was 10 points (0.5%) lower at 2,080
The Nasdaq Composite shed 19 points (0.4%) to 5,109
In moderately-heavy volume, 1.3 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq
WTI crude oil inched $0.06 lower to $41.65 per barrel and wholesale gasoline lost $0.03 to $1.34 per gallon
The Bloomberg gold spot price added $7.49 to $1,064.95 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 100.19
Chicago manufacturing activity falls back into contraction territory
The Chicago Purchasing Managers Index showed Midwest activity surprisingly fell back into contraction territory (below 50) in November, dropping to 48.7 from 56.2 in October, and versus the Bloomberg expectation of a decline to 54.0.
Pending home sales rose 0.2% month-over-month in October, versus the projected 1.0% rise, and following the favorably revised 1.6% drop registered in September. Compared to last year, sales were 2.1% higher, versus forecasts of a 4.3% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in October.
The Dallas Fed Manufacturing Index improved to -4.9 for November from October’s unrevised -12.7 level, with economists forecasting an improvement to -10.0, with a reading below zero denoting contraction.
Treasuries were mixed, with the yield on the 2-year note ticking 1 basis point higher to 0.93%, while the yield on the 10-year note declined 1 bp to 2.21% and the 30-year bond rate dipped 2 bps to 2.98%.
Tomorrow, the U.S. economic calendar will be focused on November manufacturing activity with the release of the ISM Manufacturing Index and Markit’s Manufacturing PMI Index. ISM’s read is projected to tick slightly higher to 50.5 from 50.1 in October, while Markit’s report is forecasted to remain at the preliminary 52.6 level, but down from the prior month’s read of 54.1. Readings above 50 for both indexes denote expansion. As noted in the Schwab Market Perspective: Realism Returns, The US economy is currently bifurcated; with manufacturing recently near contraction territory, but services showing healthy growth. Given the 12% and 88% respective weights in the economy, a broader recession is unlikely. In addition, the outperformance of the industrials sector since the August-September correction suggests the worst may be over for the manufacturing sector.
Europe higher ahead of this week’s ECB decision, Asia mostly lower to begin week
European equities finished mostly higher, despite some lackluster action in Asia and as the European Central Bank monetary policy meeting is later this week. The euro decreased versus the U.S. dollar, while bond yields in the region traded mostly to the upside. German economic data was in focus, with the nation posting an unexpected decline in October retail sales, while a separate report revealed a 0.1% m/m rise in consumer price inflation for November, matching estimates, and compared to the flat reading registered in the month prior. In other economic news, U.K. mortgage approvals last month slightly missed expectations.
Stocks in Asia finished mostly lower amid continued volatility in the Chinese markets and following some mixed economic data out of Japan. Chinese equities encountered some heightened volatility on the heels of Friday’s sharp drop that came courtesy of reports that China Securities Regulatory Commission has widened its regulatory probe into the brokerage industry. Mainland Chinese markets overcame solid early losses to tick higher. Stocks in Japan decreased, with the yen nudging higher during the session, while reports showed the nation’s industrial production rose by a smaller-than-expected amount, though retail sales grew much more than forecasted for October. South Korean equities were bogged down by weakness in oil & gas and health care stocks, while drops for basic materials and consumer goods issues led to a decline for Australian securities.
Indian equities ticked higher, amid some caution ahead of tonight’s monetary policy decision from the Reserve Bank of India (RBI). Ahead of the RBI’s decision, the nation reported a 7.4% year-over-year pace of 3Q GDP growth after the closing bell, after expanding by 7.0% in 2Q, and versus expectations of a 7.3% rise. Schwab’s Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis of India in his article, India Becomes World’s Fastest Growing Economy: What Investors Need to Know, at www.schwab.com/oninternational, and follow Jeff on Twitter: @JeffreyKleintop.