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Mixed tone after ISM data

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The major market indexes are mixed after the release of the Institute of Supply Management Index report, which slipped to 49.5% in September from August's 50.5%. The Dow Industrials (INDU) 7,667 +0.98% are trading higher by 74 points, with the S&P 500 Index (SPX.X) 819 +0.5% adding 4 points. A more mixed picture is found with the broader NASDAQ Composite (COMPX) 1,169 -0.21% and technology weighted NASDAQ-100 Index (NDX.X) 832 trading near unchanged levels.

September's slip back below the 50% level suggests a contracting factory sector.

Within the index, the new orders component edged up to 52.01% from 49.7%, while the production and employment sub-indexes fell from the prior month.

Today's broader-based ISM reports partially confirms yesterday's released Chicago PMI, which also slid below the 50% mark, igniting some worries about the health of the factory sector, which had the Dow Industrials trading a 52-week low on an intra- day basis and sent the NASDAQ Composite to 52-week lows.

Other economic data out today had August construction spending falling -0.4%, which was more than economist's expectations for a -0.1% decline.

JP Morgan issued some less than bullish comments today in a report titles "still expensive, still over-owned." In that report, the firm has a year-end 2003 target for the S&P 500 Index (SPX.X) 819 of 800, about 2% below current levels, on the belief that earnings outlook will remain weak.

JP Morgan told clients "Even after three years of a bear market and some multiple contractions, we think equity valuations remain stretched. We believe that further multiple contractions is likely. The U.S. macro backdrop remains weak, with few signs of a sustained recovery in the making." The firm also felt that the consumer is at risk because of weak labor market conditions and also pointed to high leverage in large pockets of the corporate sector.

Electronic retailers under pressure

Today's sector action has retailers under continued selling pressure as depicted by the S&P Retail Index (RLX.X) 258 -2.3% and Retail HOLDRS (AMEX:RTH) $69.25 -2.49% amid a lockout of East Coast longhshoremen. Meanwhile, the Pacific Maritime Association is keeping ports shut down until it has settled negotiations with the International Longshore and Warehouse Union. The two bodies have been bickering over contract issues for five months that culminated in a work slowdown about two weeks ago. On Sunday, the PMA said it was cheaper to close the ports rather than to leave them open with little activity.

The 29 ports handle about 50% of the country's ocean-going cargo (imports and exports). Should a lockout continue for weeks, it will undoubtedly hurt inventory levels during the crucial holiday shopping season. Some economists say the current lockdown is costing the U.S. $1 billion per day.

Electronic retailers, whose products are primarily manufactured in Asia, have suffered sharp drops. Tweeter Home Entertainment (NASDAQ:TWTR) $6.30 -8.69%, Best Buy (NYSE:BBY) $20.99 -5.91%, RadioSchack (NYSE:RSH) $19.18 -4.38% and Circuit City (NYSE:CC) $9.78 -35% are all under selling pressure today.

Jeff Bailey

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