Dow slips as manufacturing activity shrinks
SAN FRANCISCO (MarketWatch) -- The Dow industrials saw a slight decline Monday after data showed that American manufacturing activity dropped into contraction territory in June for the first time in three years, but the Nasdaq Composite and S&P 500 index finished modestly higher.
"Removal of [a European Union] doomsday scenario is more important than manufacturing data as a doomsday scenario," said Michael Gayed, chief investment strategist at Pension Partners LLC.
And the "last time manufacturing data was like this was in the middle of 2009 -- in the middle of a massive equity rally," he said.
The Dow Jones Industrial Average (DJIA) fell 8.7 points, or 0.1%, to close at 12,871.39.
That's hardly a dent to Friday's nearly 278-point rally in the wake of an agreement by European Union leaders on fresh measures to tackle the euro-zone debt crisis.
DuPont (DD) led the decliners on the Dow, with shares down 2.3%, after Jefferies & Co. cut its rating on the stock to hold from buy.
Fifteen of the Dow's 30 components closed lower.
The S&P 500 Index (SPX) ended 3.4 points, or 0.25%, higher at 1,365.51, with telecom stocks leading the advance among the benchmark's 10 component sectors.
The Nasdaq Composite Index
closed up 16.2 points, or 0.6%, at 2,951.23, after a low of 2,925.71, as shares of
The Institute for Supply Management reported Monday that U.S. manufacturing activity shrank in June for the first time since July 2009. The ISM manufacturing index fell to 49.7% from 53.5% in May. A MarketWatch-compiled poll of economists showed a forecast of 52.3%. Read more on the ISM.
"Mounting evidence of slower growth both at home and abroad may weigh on share prices for the remainder of the week, where things could get ugly if Friday's employment report swells downside risks," said John Lonski, chief economist at Moody's Capital Markets Group.
Still, "one monthly reading of less than 50 for the ISM manufacturing index offers no compelling reason for panic," he said.
While June's ISM manufacturing index's fall below 50 is "the surest sign yet that the U.S. is catching the slowdown already under way in Europe and China," the index "does not suggest that another recession is looming," wrote Paul Dales, senior U.S. economist at Capital Economics, in a note Monday.
"If our assumptions that China will avoid a hard landing and that any breakup of the euro will be orderly are right, then the ISM should rebound and the U.S. economy will continue to grow," he said.
Lonski pointed out that the latest three- and six-month averages of the ISM's index of manufacturing activity still showed "mildly expansionary" scores of 52.7 and 53.0, respectively. "In order to take the impending threat of recession seriously, the moving six-month average of the ISM manufacturing index needs to break under 50," he said.
Data on construction spending from the Commerce Department were upbeat. Outlays for U.S. construction projects jumped 0.9% in May to a seasonally adjusted annual rate of $830 billion. That was the biggest increase of the year and was well above analysts' expectations of a 0.2% rise. Read more on construction spending.
Friday's U.S. nonfarm payroll data are a "big concern," said David Pankiw, partner at Cubic Financial Advisors.
The previous figure came in at 69,000 and the consensus for the coming data is at 90,000, added Pankiw, but he believes the figure may come in at half the consensus estimate.
Spotlight on global growth
Global growth concerns remained in the spotlight after a rise in the unemployment rate and weak manufacturing activity in the euro zone.
"June's manufacturing PMIs from the euro zone, China and other East Asian economies indicated flat to lower manufacturing activity outside the U.S.," said Lonski at Moody's. "Moreover, the euro zone's unemployment rate rose to a record 11.1% in May."
The Markit purchasing managers' index for the euro-zone manufacturing sector came in at 45.1 in June, up from a preliminary reading of 44.8 but matching the nearly three-year low scored in May.
"On the positive side, markets look for [a European Central Bank] interest rate cut on Thursday," Lonski elaborated. "In general, markets appear to be fairly confident that the world's major central banks will do whatever is necessary to sustain global-expenditure growth." Read about action in European stock markets.
U.S. stocks rallied on Friday, with the Dow posting a gain of 3.9% in June, its best month since October 2011. For the second quarter, however, the blue-chip index fell 2.5%, registering its first quarterly loss in three quarters. Read Friday's Market Snapshot.
For every stock that fell, more than two advanced on the New York Stock Exchange Monday, where about 736 million shares traded by the close. Composite volume was nearly 3.3 billion.
In commodities trading Monday, crude futures (CLQ2) closed below $84 a barrel in New York after a final reading of HSBC's China purchasing-managers' index for June showed the gauge slipped to 48.2 from 48.4 in May, indicating that business conditions worsened at Chinese factories. Read more on China data.