Stocks Move Lower to Start the New Year
Stocks were on the defensive on the first trading day of 2014 driven lower by weaker than expected data release in China. The PMI manufacturing survey was softer than expected driving down Asian shares which spilled over into European and US equity bourses. For the week the S&P 500 index edged lower after experiencing a rough beginning to the New Year. The large cap index was down 0.53% while the Dow Industrials declined 0.03% and the Nasdaq composite dropped 0.59%.
Thursday's release of construction spending figures, as well as, the prior week's estimate of advanced retail sales is likely to boost estimates for Q4 US GDP from around 2.0% toward 2.5%. The Commerce Department reported that November construction spending to an annual rate of $934.4 billion.
Manufacturing in the US has also experienced positive momentum. Purchasing managers survey's released over the past 3 months are well above the 50 boom bust level. According to the Institute for Supply Management's index of U.S. manufacturing conditions printed at 57. The index was forecast to slip to 56.0 from 57.3 in November.
According to the ISM the New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010 when it registered 65.1 percent. The Employment Index registered 56.9 percent, an increase of 0.4 percentage point compared to November's reading of 56.5 percent. December's employment reading is the highest since June 2011 when the Employment Index registered 59 percent.
Despite the strong US numbers, equity bourses dipped in the face of weaker than expected Chinese data. China's manufacturing PMI was slightly worse than expected. The official measure showed a slight easing to 51.0 from 51.2, while the final HSBC measure confirmed the flash at 50.5. The most noticeable sub-component was the export outlook which fell to new 4-month lows at 49.1.
The technical picture for the major US equity bourses remains positive as momentum flattens but continues to forecast a positive trajectory. Next week's jobs data will go a long way toward forecasting the direction of equities for the balance of January. Historically the first 5-trading days of the year can be used to gauge sentiment of equity investors and the potential direction of the market over the balance of the first quarter.