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Service sector shows some slowing

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This morning's economic data has the Institute for Supply Management (ISM) non-manufacturing index falling to 53.1% in July from 57.2% in June, signaling similar slowing at the services level that presented itself in last week's ISM manufacturing survey.

Roughly 25% of the firms polled said conditions were improving while 21% said business conditions were worsening. Nine industries expanded in July, six contracted and two were unchanged.

The ISM non-manufacturing reading for new orders fell back to 52.6% from 56.9%, while backlogs of orders dropped to 43.5% from 49.0%.

The employment index rose to 45.8% from 44.3%, which still indicated a weak labor market.

The ISM's non-manufacturing "prices paid" index indicated further expansion, rising to 59.0% from 54.0%.

One participant in the ISM survey said, "While the economy continue to show signs of improvement, overall outlook remains cautious through year-end."

Ralph Kauffman, head of the ISM survey said, that some members "cited negative effects of national economic bad news, but some members indicated that business was either holding it own or increasing."

However, the market appears to have taken today's ISM non- manufacturing survey as a negative as stocks have sunk to their session lows with the Dow Industrials (INDU) down 123 points (-1.47%), the S&P 500 is lower by 14.5 points (-1.66%) and the broader NASDAQ Composite (COMPX) is off 24 points (-1.93%).

Sector losers has the Combined Telecom Index (XTCX) -4.05% at 87.05, Semiconductor Index (SOX.X) -4.02% and hitting a new 52-week low and Biotechnology Index (BTK.X) -3.66% at 334.

Sector strength is limited to the Utility Index (UTY.X) 265.70 +1.82%, Gold Silver Index (XAU.X) 63.84 +0.9% and Retail stocks as depicted by the Retail HOLDRS (AMEX:RTH) 73.60 +0.23% showing modest plus side.

Breadth on the NYSE is negative with decliners outnumbering advancers by a 9 to 5 margin, while over at the NASDAQ, decliners outnumber advancer 2 to 1.

Stocks hitting new 52-week lows continue to outnumber new 52-week highs with 128 stocks hitting new lows on the NYSE versus just 16 stock at new highs, while 153 stocks reach new lows at the NASDAQ versus 10 new highs.

Jeff Bailey
Senior Market Technician
Option Investor

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