Stocks Melt on Toxic Mix
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Stocks sold off aggressively Monday as the lethal combination of weak economic data plus continued Fed tapering weighed on sentiment and encouraged profit takers to lock in gains.
With less than an hour until the close, the Dow is down 295, the S&P 500 is down 38 and the NASDAQ is down 103. Year-to-date the Dow is down 7.2%, the S&P 500 is down 5.8% and the Nasdaq is down 4.3%.
Today's ISM manufacturing report was a big cause for concern. The report came in at 51.3 versus the consensus of 56. While above 50, indicating manufacturing growth, the report was down 5.2 from last month's reading and was the largest monthly decline since May 2011. The New Orders Index was also a concern, falling more than 13 points - the most since December 1980.
While the ISM data was weak, MKM Partners' Chief Economist & Market Strategist, Michael Darda, is not overly concerned. "The headline ISM figure is still consistent with moderate growth, however, not a fall back into recession. Moreover, aberrant weather conditions were cited by some purchasing managers as a menacing factor during the January survey period. We thus expect the ISM data to bounce back in the months ahead and would recommend smoothing the last few data points with a moving average, which probably gives a better reflection of underlying conditions." Commenting on what would change their mind, he said: "We would consider backing off our upbeat outlook if (1) we see several more months of material weakness in the PMIs that was associated with, (2) plunging confidence levels (the Conference Board data in January rose to a cycle high), and (3) a material, sustained tightening in financial conditions." They do not expect this to be the case, however.
In addition to the ISM report, last week's Fed tapering brings the monthly bond buying plan to $65 billion, down from $85 billion at the end of 2013. Markets will also have to adjust to a new Fed Chairman. Janet Yellen was sworn in today to replace Ben Bernanke, who successfully navigated the worst economic crisis since the Great Depression. While Ms. Yellen is seen as more dovish than Mr. Bernanke, since her nomination QE has been cut twice. It is clear the Fed wants to end its excessive quantitative easing program under her watch.
With less than an hour until the close, the Dow is down 295, the S&P 500 is down 38 and the NASDAQ is down 103. Year-to-date the Dow is down 7.2%, the S&P 500 is down 5.8% and the Nasdaq is down 4.3%.
Today's ISM manufacturing report was a big cause for concern. The report came in at 51.3 versus the consensus of 56. While above 50, indicating manufacturing growth, the report was down 5.2 from last month's reading and was the largest monthly decline since May 2011. The New Orders Index was also a concern, falling more than 13 points - the most since December 1980.
While the ISM data was weak, MKM Partners' Chief Economist & Market Strategist, Michael Darda, is not overly concerned. "The headline ISM figure is still consistent with moderate growth, however, not a fall back into recession. Moreover, aberrant weather conditions were cited by some purchasing managers as a menacing factor during the January survey period. We thus expect the ISM data to bounce back in the months ahead and would recommend smoothing the last few data points with a moving average, which probably gives a better reflection of underlying conditions." Commenting on what would change their mind, he said: "We would consider backing off our upbeat outlook if (1) we see several more months of material weakness in the PMIs that was associated with, (2) plunging confidence levels (the Conference Board data in January rose to a cycle high), and (3) a material, sustained tightening in financial conditions." They do not expect this to be the case, however.
In addition to the ISM report, last week's Fed tapering brings the monthly bond buying plan to $65 billion, down from $85 billion at the end of 2013. Markets will also have to adjust to a new Fed Chairman. Janet Yellen was sworn in today to replace Ben Bernanke, who successfully navigated the worst economic crisis since the Great Depression. While Ms. Yellen is seen as more dovish than Mr. Bernanke, since her nomination QE has been cut twice. It is clear the Fed wants to end its excessive quantitative easing program under her watch.
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