Dow Drops 200 Points as Dismal Data Sinks Stocks

Look out below.

REUTERS

Stocks are tumbling today after disappointing economic data called into question the strength of the U.S. economy. The Dow Jones Industrial Average has fallen 204.74 points, or 1.2%, to 16,838.16 at 1:03 p.m., while the S&P 500 has dropped 1% to 1953.61. The Nasdaq Composite has declined1.3% to 4,436.01 and the small-company Russell 2000 is off 1.2% at 1,088.87.

There was plenty of dismal data to go around this morning. The ADP jobs report got things started off nicely–the report showed 213,000 workers being hired in September, beating economist forecasts for 205,000–but it was all downhill from there. The ISM manufacturing purchasing managers index fell to 56.6, missing forecasts for 58.2, while construction spending dropped 0.8% in August, well below estimates for a rise of 0.5%. Marketfield’s Michael Shaoul doesn’t think the ISM data is that bad:

The ISM Manufacturing Survey came in at 56.6 this morning missing the aggressive estimate of 58.5 but staying at a strongly positive area with 83% (or 15 out of 16) of the industries surveyed reporting growth over the last month. With markets under pressure headlines will no doubt describe this report as disappointing but anytime the 12 month ma of this data manages to extend above 55 (it is currently 55.5) 5 years into an economic cycle (thus eliminating the “V” shaped recovery that boosts early cycle readings) it is hard to be anything other than positive about the state of the manufacturing industry.

ISI Group’s Denniss DeBusschere frets that weakening growth could derail the stock market:

The data disappointed across the board and markets have been hit as a result. 10yr rates are almost back toward pre FOMC lows and 2yr has rolled over as well, that would imply that the weakening growth outlook, not the Fed, is responsible for the move lower in risk assets. Growth will likely continue to trump the Fed (assuming no big mistakes) going forward. Granted, we could see a pop in risk to the extent that Yellen and cos make dovish statements, and the current oversold condition could help that along short term, but unless we see a rally with improving growth and cyclical factors leading the way higher, a rally off short term oversold levels will be a fade. Given slowing econ growth, lower inflation expectations and the drop in rates, does HY look attractive again? Also, if US growth continues to catch up to the rest of the world, non-commodity based cyclicals could start to close the gap, to the downside, with commodity based cyclicals.

Investors, meanwhile, are running for the safety of utilities, notes Interactive Brokers’ Andrew Wilkinson:

Stocks are slumping midweek. However, higher-yielding dividend stocks are broadly higher according to our market scanner. The utility sector as a whole is higher by 1.24% and contrasts with the materials sector, facing a loss of 1.30%. Maybe the broad market move is due to perceptions that the US economy is facing a slower rather than faster outlook on account of ISM and ADP reports out this morning. Whether that is the case of not, investors are responding to the move by jumping on the treasury market propelling yields 8.4bps lower to 2.408% and to the lowest since September 5. Exelon Corp. (EXC), for example, yielding 3.34% is the biggest gainer on the day. It appears that option traders are also trading somewhat more fervently in utility stocks. By midday on Wednesday, its options volume was about 27% higher than its 10-day average.

Do you have a better idea?