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ISM data takes wind out of bull's sail

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Stocks have given back the bulk of their early morning gains after the Institute for Supply Management (ISM) said its monthly diffusion index rose to 49.2 in November, compared to October's 48.5 and marked a third consecutive month under the 50.0 level. Levels above 50 are considered to depict growth, while levels below 50 depict contraction.

While the overall ISM Index did show some modest recovery from October's levels, a look inside has new orders falling to 49.9 from October's 50.9. However, production jumped to 54.6 from 49.3. Still showing contraction is the employment component as it fell to 43.8 in November, compared to October's 45.0 reading.

Economists had expected the ISM Index to creep over the 50.0 mark to 50.8 and today's number was a disappointment.

After showing a 147 point gain to 9,043, the Dow Industrials (INDU) 8,885 -0.12% is off by 11 points. Drug-maker Johnson & Johnson (NYSE:JNJ) $54.71 -4.05% leads the Dow's decliner list after a weekend article in the New York Times said that European regulators were considering banning JNJ's Eprex drug for patients with chronic kidney falure due to 160 reported cases of pure red- cell aplasia (PRCA), a condition that can destroy a patient's ability to make oxygen-carrying red blood cells, leaving them dependent on blood transfusions in order to survive. While European regulators feel the drug could still be used to treat patients with anemia caused by cancer chemotherapy, a banning of the drug in patients with chronic kidney failure could cost Johnson & Johnson (JNJ) several hundred million dollars in sales.

According to the New York Times article, regulators were alarmed that the cases of the side effect mentioned above have occurred in the last three years, while the drug itself has been on the market for about 10 years. This suggests that the problems stem from some type of change in the way the drug is being manufactured, or administered at the doctor level.

The American version of the Eprex drug is sold as Procrit by JNJ and Epogen by AMGN. Amgen's (AMGN) Epogen drug has been associated with only a handful of cases of aplasia.

Eprex and Procrit accounted for $3.4 billion of JNJ's total sales of $33 billion last year (10.3%), making the drug the company's biggest-selling product.

Industry analysts think such a move by European regulators could be a positive scenario for JNJ rivals Roche Holdings AG and Amgen (NASDAQ:AMGN) $55.38 +1.59% as both sell a similar drug.

Broader market action shows a more mixed look at the sector level. Earlier, all but 2 of the sectors we follow on a regular basis were showing gains, but that has now turned to about a 60/40 look with the bulk still showing gains.

Forest & Paper Products (FPP.X) 294 -2.72% digests some of last weeks gains and leads this morning's sector loser list. Also weak are both healthcare sectors in the HMO Index (HMO.X) 485 -1.23% and Morgan Stanley Health Providers Index (RXH.X) 276 -1.45%.

On the upside, Wireless Telecom Sector Index (YLS.X) 64.17 +4.81% continues to trade strong. Today, Morgan Stanley upgraded the wireless industry to "attractive" from "cautious," saying they expect the market to look more favorably on the wireless companies now that free cash flow is on the horizon, despite intense competition. Morgan ranked AT&T Wireless Services (NYSE:AWE) $8.22 +8.87% as their "top pick" and raised their price target to $11 from $10.

Jeff Bailey

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