Disappointing Manufacturing Data Drags Stocks Sharply Lower - U.S. Commentary

(RTTNews) - Extending the downward trend seen over the past two weeks, stocks moved sharply lower during trading on Monday. A disappointing reading on manufacturing activity contributed to the broad based weakness on Wall Street.

The major averages remained firmly negative going into the close, ending the session near their worst levels of the day. The Dow plummeted 326.05 points or 2.1 percent to 15,372.80, the Nasdaq dove 106.92 points or 2.6 percent to 3,996.96 and the S&P 500 plunged 40.70 points or 2.3 percent to 1,741.89.

With the steep losses on the day, the Dow and the S&P 500 fell to their lowest levels in over three months, while the Nasdaq set a two-month closing low.

The sell-off on Wall Street came following the release of a report from the Institute for Supply Management showing a significant slowdown in the pace of growth in the manufacturing sector in the month of January.

The ISM said its purchasing managers index fell to 51.3 in January from a revised 56.5 in December. A reading above 50 indicates continued growth in the manufacturing sector, but economists had expected the index to show a much more modest decrease to a reading of 56.0.

With the much steeper than expected decrease, the purchasing managers index fell to its lowest level since hitting 50.0 in May of 2013.

Bradley Holcomb, chair of the ISM Manufacturing Business Survey Committee, said, "A number of comments from the panel cite adverse weather conditions as a factor negatively impacting their businesses in January."

The weaker than expected manufacturing data raised concerns that the Federal Reserve may have been begun scaling back its stimulus program too soon.

Last Wednesday, the Fed announced another $10 billion reduction in the pace of its asset purchases to $65 billion per month.

Worries about the economic impact of the recent decline in the value of emerging market assets also continued to weigh on stocks.

Meanwhile, traders largely shrugged off a report from the Commerce Department showing a modest increase in construction spending in the month of December.

Sector News

Most of the major sectors showed notable moves to the downside on the day, reflecting the broad based selling pressure on Wall Street.

Brokerage stocks posted particularly steep losses, resulting in a 3.6 percent drop by the NYSE Arca Broker/Dealer Index. With the loss, the index set a two-month closing low.

LPL Financial (LPLA), Raymond James (RJF), and Charles Schwab (SCHW) turned in some of the brokerage sector's worst performances.

Significant weakness was also visible among steel stocks, as reflected by the 3.5 percent loss posted by the NYSE Arca Steel Index. The drop pulled the index down to its lowest closing level in almost five months.

Biotechnology stocks also saw considerable weakness, dragging the NYSE Arca Biotechnology Index down by 3.2 percent. InterMune (ITMN) helped lead the sector lower, tumbling by 10.6 percent.

Software, tobacco, transportation, and defense stocks also saw notable weakness on the day.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved to the downside on Monday, although several markets remained closed for holidays. Japan's Nikkei 225 Index plunged by 2 percent, while Singapore's Straits Times Index dropped by 1.2 percent.

The major European markets also came under pressure on the day. While the U.K.'s FTSE 100 Index fell by 0.7 percent, the German DAX Index and the French CAC 40 Index tumbled by 1.3 percent and 1.4 percent, respectively.

In the bond market, treasuries moved sharply higher on the heels of the disappointing manufacturing data. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid by 8.7 basis points to a three-month closing low of 2.581 percent.

Looking Ahead

Trading on Tuesday could be impacted by the release of a report on factory orders along with speeches by a pair of Federal Reserve officials.