U.S. stocks fell after the Institute for Supply Management’s print on domestic manufacturing activity disappointed. Each of the three major indices posted their largest one-day declines since mid-October.
Earlier, stocks had fluctuated as investors weighed better than expected global manufacturing data against President Donald Trump’s announcement that he would reimpose tariffs on Brazilian and Argentinian steel and aluminum. Meanwhile, uncertainty lingered over whether China would escalate retaliation over a bill aimed at supporting pro-democracy Hong Kong protestors.
Here’s where markets settled at the end of regular equity trading:
S&P 500 (^GSPC): -0.86%, or 27.11 points
Dow (^DJI): -0.96%, or 268.37 points
Nasdaq (^IXIC): -1.12%, or 97.48 points
10-year Treasury yield (^TNX): +4.8 bps to 1.824%
Gold (GC=F): -0.26% to $1,468.80 per ounce
The ISM manufacturing purchasing managers’ index (PMI) came in at 48.1 for November, falling from 48.3 in October and coming in below the 49.2 reading expected by consensus economists, according to Bloomberg data. This marked the fourth consecutive month that the ISM’s print was below the neutral level of 50, indicating contraction in manufacturing sector activity. New orders, inventories and employment each declined at a faster pace in November than in October for industrial firms.
“A charitable interpretation—and one consistent with the recent improvement in China’s PMIs—is that the ISM is bouncing along the bottom,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Monday. “We’d be surprised to see a further significant decline, but the sector is stuck in a mild recession with little prospect of a real near-term revival. This will weigh on job growth and capex over the next few months, to the point where we are not ready to rule out a further easing in January.”
The weaker than expected ISM print eclipsed a strong report on U.S. manufacturing activity from IHS Markit, which was also released Monday morning. According to that firm’s PMI, U.S. manufacturing activity climbed to the highest level since April, and stayed in expansionary territory as growth rates for output and new orders improved.
A separate report from the Commerce Department on Monday showed U.S. spending on construction projects fell by 0.8% in October, where an increase of 0.4% had been expected. Spending on private, residential and public construction projects each posted declines for the month. Declines in the Real Estate sector (XLRE) led the drop in the S&P 500, amid the disappointing construction data.
Meanwhile, other geopolitical concerns continued to play out in the background.
Trump on Thursday signed a bill backing the pro-democracy movement in Hong Kong. The legislation passed with overwhelming support in both chambers of Congress but has been speculated to add more friction to U.S.-China trade talks.
The Hong Kong Human Rights and Democracy Act of 2019 calls for the secretary of state to determine each year that Hong Kong retained enough independence from China to justify a special trading status with the U.S. It also allows the U.S. to impose sanctions on those found to commit human rights violations in the region.
Despite drawing condemnation and previous threats of unspecified retaliation from Beijing, the bill has so far avoided eliciting a trade-related response from China. Instead, China suspended U.S. military ships and aircraft from visiting Hong Kong ports and sanctioned U.S. human rights organizations in the city, according to Foreign Ministry spokesperson Hua Chunying. But China did, however, suggest that it “will take further necessary action in accordance with the development of the situation,” according to the state-run news agency Xinhua.
The six months of protests in Hong Kong have continued to take a toll on the economy in the region, which serves as a hub of international business. Hong Kong’s retail sales posted the largest drop on record in October and dropped 24.3% over last year, according to new government data Monday. The months-long protests brought the total value of retail sales down 9% for the first 10 months of 2019 versus the same period last year.
In China, however, new economic data topped expectations as the country’s key manufacturing sector showed signs of improvement despite unresolved trade negotiations. The privately issued Caixin/Markit manufacturing Purchasing Managers’ index unexpectedly rose to 51.8 in November from 51.7 in October, while a decline to 51.5 had been expected. Readings above the neutral level of 50 indicate expansion.
The increase in the headline index to a three-year high was driven by stronger job creation and higher purchases of manufactured goods, Caixin said.
Manufacturing activity in euro area economies also fared better than expected in November, according to IHS Markit. The manufacturing Purchasing Manufacturing Index for the currency area rose to 46.9 in November, from 45.9 in October, as drops in new orders and outputs softened. And while job losses were sustained for a seventh straight month, business sentiment rose to a five-month high, IHS Markit said in its report.
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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