The S&P 500 lost 0.9% on Monday, as weak manufacturing data and some trade angst contributed to a rough start to December. The Dow Jones Industrial Average (-1.0%), Nasdaq Composite (-1.1%) and Russell 2000 (-1.0%) slightly underperformed.
Leading the decline were the real estate (-1.8%), industrials (-1.6%), and information technology (-1.4%) sectors, all of which fell more than 1.0%. The consumer staples (+0.3%) and energy (+0.03%) sectors finished in positive territory, with the latter finding support from higher oil prices ($55.99, +0.82, +1.5%).
The day began relatively unchanged, but selling quickly ensued and accelerated after the ISM Manufacturing Index for November declined to 48.1% (consensus 49.2%) from 48.3% in October. The deceleration in activity was disappointing but was especially disheartening after manufacturing PMIs from China and Europe showed improvement.
Dampening risk sentiment was President Trump declaring he will restore tariffs on steel and aluminum imports from Argentina and Brazil after the countries devalued their currencies. On a related note, reports continued to present the existing tariffs on Chinese imports and the Hong Kong Human Rights and Democracy Act as roadblocks to a trade deal.
Other underperforming stocks included those in the trade-sensitive Philadelphia Semiconductor Index (-1.5%) and many highly-valued growth stocks like Roku (ROKU 136.07, -24.30, -15.2%). The latter was downgraded to Underweight at Morgan Stanley with a $110 price target for valuation reasons.
The mood on Wall Street wasn't as negative as the losses would suggest, though. The market had a great month of November, and today might have been exacerbated by some profit-taking interest. It's also worth reminding that the U.S. is more a services economy than a manufacturing economy.
Consumer spending appeared in good shape on this Cyber Monday. Adobe Analytics estimated online sales would total $9.4 billion by the end of today after Black Friday registered a record a record $7.4 billion in online sales.
Elsewhere, longer-dated U.S. Treasuries succumbed to increased selling pressure after the Financial Times reported that the Fed is considering a rule to allow inflation to exceed its 2.0% target. The 2-yr yield increased two basis points to 1.84%, and the 10-yr yield increased six basis points to 1.84%. The U.S. Dollar Index declined 0.4% to 97.84.
Reviewing Monday's economic data, which included the ISM Manufacturing Index for November and the Construction Spending report for October:
- The ISM Manufacturing Index for November registered a 48.1% reading (consensus 49.2%) versus 48.3% for October. The dividing line between expansion and contraction is 50.0%, so the November reading connotes a deceleration in activity from the prior month.
- The key takeaway from the report is that it reflects ongoing weakness in the U.S. manufacturing sector, evidenced primarily by the fourth straight decline in the New Orders Index (to 47.2% from 49.1%).
- Total construction spending declined 0.8% m/m in October (consensus +0.3%) on the heels of a downwardly revised 0.3% decline (from +0.5%) in September.
- The key takeaway from the report is that private construction spending remains weak (down 1.8% yr/yr), saddled by a downturn in nonresidential spending (down 4.3% yr/yr) that has stemmed in large part from a 17.7% decline in commercial spending.
Investors will not receive any notable economic data on Tuesday.
- Nasdaq Composite +29.1% YTD
- S&P 500 +24.2% YTD
- Russell 2000 +19.2% YTD
- Dow Jones Industrial Average +19.1% YTD