US benchmarks ended in the negative zone for the second consecutive day as disappointing global cues and concerns about US economic data turned investor sentiment gloomy. Meanwhile, China cut its growth estimate and business activity contracted larger than expected in Europe, leading to a disappointing day for the markets. Investors remained cautious despite reports of an expansion in the service sector and lesser-than-expected decline in factory orders.
The Dow Jones Industrial Average (DJI) shed 0.1% to settle at 12,962.81. The Standard & Poor 500 (S&P 500) was down 0.4% and finished Monday’s trading session at 1,364.33. The tech-laden Nasdaq Composite Index lost 0.9% and dropped to 2,950.48. The fear-gauge CBOE Volatility Index (VIX) gained 4.4% to move up to 18.05. Consolidated volumes on the New York Stock Exchange, NYSE Amex and Nasdaq were 6.08 billion shares lower than the daily average of 6.9 billion. Decliners had an upper hand over advancers, as for every three stocks that moved down on the NYSE, two stocks managed to move up.
Investors were in a cheerful mood for the major part of last week as benchmarks scaled new heights. However, as the markets opened on Monday investor sentiment remained low. The Dow is now precisely 37.19 points below 13, 000, the S&P 500 has dropped below its 14-day moving average and the Nasdaq is 49.52 points short of the 3, 000 level. Sixteen of the thirty Dow components finished in the red zone with Alcoa Inc. (NYSE:AA), Caterpillar, Inc. (NYSE:CAT), Intel Corporation (NASDAQ:INTC) and United Technologies Corporation (NYSE:UTX) leading the declines as they lost 3.6%, 2.1%, 1.4% and 1.5%, respectively.
The tech-laden Nasdaq index was the biggest losers among the fellow benchmarks and was largely dragged down by a 2.2% fall in Apple Inc. (NASDAQ:AAPL). The Technology SPDR Select Sector Fund (XLK) dropped 0.9% and stocks including Microsoft Corporation (NASDAQ:MSFT), Cisco Systems, Inc. (NASDAQ:CSCO), QUALCOMM Incorporated (NASDAQ:QCOM) and NVIDIA Corporation (NASDAQ:NVDA) slumped 0.9%, 0.8%, 0.5% and 3.4%, respectively.
What primarily led to the markets’ fall was the contraction of the Chinese growth rate. The world’s second-largest economy growth rate for 2012 declined to 7.5%, the weakest in eight years. In the annual work report to the National People’s Congress (NPC), Chinese Premier Wen Jiabao said: “We aim to promote steady and robust economic development, keep prices stable, and guard against financial risks by keeping the total money and credit supply at an appropriate level, and taking a cautious and flexible approach”.
In addition, reports of a contraction in business activity from across the Atlantic also weighed down domestic sentiment. The composite Purchasing Managers’ Index dropped to 49.3 from prior estimates of 49.7. Anything below 50 suggests a contraction in business activity. Thus, with shrinkage in business activity during February in Europe, recessionary fears have made some sort of a comeback.
Coming back to the domestic front, the Institute of Supply management reported that ‘economic activity in the non-manufacturing sector expanded in February for the 26th consecutive month’. The report stated: “The NMI registered 57.3 percent in February, 0.5 percentage point higher than the 56.8 percent registered in January, and indicating continued growth at a faster rate in the non-manufacturing sector”. The pace of growth was also better than expectations of 56.4. However, some portions of the report were a matter for concern. The Employment Index was down 1.7 percentage points to 55.7%, which reflected a slower rate of growth in employment. Additionally, “The Prices Index increased 4.9 percentage points to 68.4 percent, indicating prices increased at a faster rate in February when compared to January”.
Separately, the Commerce Department reported that new orders for manufactured goods in January fell $4.8 billion or 1% to $462.6 billion. Consensus estimates had predicted the fall to be around 1.3%. The report also stated: “Inventories, up twenty-seven of the last twenty-eight months, increased $3.9 billion or 0.6 percent to $614.7 billion. This was at the highest level since the series was first published on a NAICS basis in 1992 and followed a 0.2 percent December increase”.
ALCOA INC (AA): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
CATERPILLAR INC (CAT): Free Stock Analysis Report
CISCO SYSTEMS (CSCO): Free Stock Analysis Report
INTEL CORP (INTC): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
NVIDIA CORP (NVDA): Free Stock Analysis Report
QUALCOMM INC (QCOM): Free Stock Analysis Report
UTD TECHS CORP (UTX): Free Stock Analysis Report
