A number of weak economic readings, both on the domestic and international fronts, left most of the benchmarks languishing in the red. While initial claims for unemployment benefits was around two-month high, manufacturing suffered the weakest quarter in three years and leading indicators declined in August in the U.S.; manufacturing activity also declined in China and Europe. However, benchmarks managed to make good most of their losses, with the Dow finishing in the green as investors remained somewhat optimistic.
The Dow Jones Industrial Average (DJI) gained 0.1% to end at 13,596.93. The Standard & Poor 500 (S&P 500) slipped a paltry 0.79 point or 0.1% to finish yesterday's trading session at 1,460.26. The tech-laden Nasdaq Composite Index was down 0.2% to close at 3,175.96. The fear-gauge CBOE Volatility Index (VIX) edged up 1.4% to settle at 14.07. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and the Nasdaq was roughly 6.15 billion shares, lower than the year-on-year daily average of 6.54 billion. For three stocks that declined, two stocks closed in the green.
Starting with the weak economic readings on the domestic front, the U.S. Department of Labor reported that seasonally adjusted initial claims were at 382,000 for the week ending September 15, a slight decline of 3, 000 from the prior week's revised figure. Initial claims were way above consensus estimates of 375, 000. Apart from the wider-than-expected initial claims figure, the 4-week moving average also increased 2,000 from the earlier week to 377,750.
Separately, financial information company Markit reported that manufacturing in the U.S. had suffered its worst quarter in three years. According to the firm, the preliminary manufacturing Purchasing Managers Index was flat compared to the earlier month at 51.5 in September. The third quarter average was also 51.5, down from 54.2 in the prior quarter. Additionally, output grew at its slowest pace since September 2009. Markit's chief economist Chris Williamson said: "With output growing at the slowest pace since the recovery began, the manufacturing sector may have even acted as a slight drag on the economy in the third quarter".
The leading indicators index, used as a barometer of economic activity over a range of three to six months, also reported a dismal trend. The Conference Board Leading Economic Index slipped 0.1% in August in contrast to a 0.5% rise in July. Also, consensus estimates was expecting it to be on a break-even level. Striking a cautious note, Ken Goldstein, economist at The Conference Board, said: "The economy continues to be buffeted by strong headwinds domestically and internationally. As a result, the pace of growth is unlikely to change much in the coming months. Weak domestic demand continues to be a major drag on the economy".
As mentioned earlier, economic data was dismal on the international front as well and China's manufacturing was contracted for the 11th month in a row. The preliminary reading of the China HSBC manufacturing PMI was 47.8 for September, a slight improvement from 47.6 in August. While HSBC's chief economist Qu Hongbin attributed the dismal show to "weak new business flows and a longer than expected destocking process", he sounded positive about the period going forward and said: "The recent easing measures should be working to lead to a modest improvement from the fourth quarter onwards". Separately, Markit reported that Euro-zone's purchasing composite managers index dropped from 46.3 in August to 45.9 in September.
While economic readings combined to dent the benchmarks, all of which hinted at a slowdown in economic activity, the financial sector closed in the red. The Financial Select Sector SPDR (XLF) was down 0.6% and stocks including American Express Company (NYSE:AXP), Bank of America Corporation (NYSE:BAC), Citigroup, Inc. (NYSE:C), The Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE:MS) and U.S. Bancorp (NYSE:USB) declined 0.6%, 1.1%, 1.1%, 1.2%, 2.1% and 0.9%, respectively.