Stock Market News for September 02, 2015

Benchmarks suffered their third biggest drop of the year on Tuesday as dismal China manufacturing data intensified global economic concerns. Meanwhile, Christine Lagarde’s comment that global economic growth could slow down further added to investors’ woes. While the S&P 500 and the Dow posted their third biggest drops of the year in terms of points, the Nasdaq posted its third biggest drop of the year in percentage terms.

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The Dow Jones Industrial Average (DJI) declined 2.8% or 469.68 points to close at 16,058.35. The Standard & Poor’s 500 (S&P 500) dropped almost 3% to end the day at 1,913.85. The tech-laden Nasdaq Composite Index closed at 4,636.10, decreasing 2.9%. The fear-gauge CBOE Volatility Index (VIX) climbed 10.5% to settle at 31.40, well above its long term average of 20. A total of about 8.9 billion shares were traded on Tuesday, lower than the last five trading sessions’ average of 9.4 billion. Declining stocks easily outpaced advancers on the NYSE. For 85% stocks that declined, 13% advanced.
 
The S&P 500 and the Dow posted their worst first trading day of a month since Mar 2009. The Nasdaq also registered its worst first trading day in a month since Oct 2011.
 
The China Federation of Logistics and Purchasing said that the official China’s manufacturing purchasing managers index (PMI) fell to its lowest level in three years in August. The PMI dropped to 49.7 in August from July’s reading of 50. A PMI reading below 50 indicates contraction in manufacturing activity. Additionally, the sub-index that measures new orders also declined to 49.7 in August from 49.9 in July. Meanwhile, China’s nonmanufacturing PMI dropped to 53.4 last month from 53.9 in July.
 
China’s official manufacturing PMI reading follows preliminary a Caixin China Manufacturing Purchasing Managers’ Index figure of 47.1 in August, which represents a 77-month low.
 
Adding to fears of a global slowdown were comments from Christine Lagarde, head of the International Monetary Fund. She said global economic growth is expected to be slower that what was projected some months ago. Slow recovery in advanced countries and further slowdown in emerging economies were cited to be the reasons behind this weak global economic growth. She also added: “Other emerging economies, including Indonesia, need to be vigilant to handle potential spillovers from China’s slowdown and tightening of global financial conditions”.
 
Meanwhile, oil prices’ impressive three-day rally of more than 27% came to a halt on Tuesday. Weak Chinese manufacturing data dragged oil prices lower. Price of WTI crude oil plunged $3.79 or 8.4% to $45.41 per barrel on Tuesday. Brent crude tanked $4.59 or 9.3% to $49.56 per barrel.
 
Drop in oil prices had a negative impact on energy shares. The Energy Select Sector SPDR (XLE) declined 3.5%, the highest among the S&P 500 sectors. Dow components Exxon Mobil Corporation (XOM) and Chevron Corporation (CVX) dropped 4.2% and 3.5%, respectively. Other key stocks from the energy sector including Schlumberger Limited (SLB), ConocoPhillips (COP) and Transocean Ltd (RIG) decreased 2.5%, 2.9% and 3.7%, respectively.
 
Separately, the Financial Select Sector SPDR (XLF) declined 3.2% and was the second biggest loser among the S&P 500 sectors. Top holdings from the financial sector including Wells Fargo & Company (WFC), JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC), Citigroup Inc. (C) and The Goldman Sachs Group, Inc. (GS) decreased 4.4%, 4.1%, 4.7%, 4.8% and 3.4%, respectively.
 
In economic news, ISM manufacturing index declined from July’s 52.7% to 51.1% in August, lower than the consensus estimate of 52.6%. Separately, U.S. construction spending touched its highest level in seven years in July. The US Census Bureau of the Department of Commerce reported construction spending of $1,083.4 billion in July, up 0.7% from revised June estimate of $1,075.9 billion. However, this increase in the payout by builders on residential and nonresidential structures was less than the consensus estimate of an increase by 0.8%.

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