Markets Turn Risk-Averse

Thursday’s January Flash Manufacturing PMI dropped to a three-month low, sending stocks falling.

Stocks took a hard fall on Thursday, after the January Flash Manufacturing PMI reading from Markit Economics declined for the first time since October. January’s reading fell to 53.7 from December’s 55.0. Although a reading above 50 indicates expansion, the hint of a slowdown raised fears that the taper of the Federal Reserve’s monthly bond purchases might adversely impact the pace of the nation’s economic recovery.

The Dow Jones Industrial Average (NYSEARCA:DIA) lost 175 points to finish Thursday’s trading session at 16,197 for a 1.07 percent decline. The S&P 500 (NYSEARCA:SPY) fell 0.89 percent to close at 1,828. The Nasdaq 100 (NASDAQ:QQQ) declined 0.38 percent to finish at 3,613. The Russell 2000 (NYSEARCA:IWM) fell 0.75 percent to end the day at 1,172.

In other major markets, oil (NYSEARCA:USO) advanced 0.46 percent to close at $34.72. On London’s ICE Futures Europe Exchange, March futures for Brent crude oil declined 74 cents (0.68 percent) to $107.53/bbl. (NYSEARCA:BNO). February gold futures advanced $25.50 (2.06 percent) to $1,264.10 per ounce (NYSEARCA:GLD).

Transports were unfazed by the broader stock market decline, as they continued their voyage to Planet Zobion during Thursday’s trading session. The Dow Jones Transportation Average climbed 0.28 percent to a new, record-high close at 7,569.89 (NYSEARCA:IYT).

In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks faded as the yen strengthened to 104.32 per dollar during Thursday’s trading session in Tokyo. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average fell 0.79 percent to 15,695 (NYSEARCA:EWJ).

Stock prices fell in China after the HSBC Flash China Manufacturing PMI for January dropped into the range of contraction, hitting a six-month low of 49.6 after December’s final reading of 50.5. A reading below 50 indicates contraction. The Shanghai Composite Index declined 0.47 percent to 2,042 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index sank 1.51 percent to 22,733 (NYSEARCA:EWH).

In Europe, stocks surprisingly fell, despite the fact that January’s Flash Eurozone Composite PMI reading from Markit Economics reached a 31-month high of 53.2 from December’s final reading of 52.1. The Flash Eurozone Manufacturing PMI reached a 32-month high of 53.9 from December’s final reading of 52.7. The economic slowdown in China intensified concerns about ongoing demand for European exports. The Euro STOXX 50 Index sank 1.08 percent to 3,117 – remaining above its 50-day moving average of 3,058. Its Relative Strength Index is 54.24 (NYSEARCA:FEZ).

Technical indicators revealed that the S&P 500 remained above its 50-day moving average of 1,812 after declining 0.89 percent to finish Thursday’s trading session at 1,828. Its Relative Strength Index fell from 58.94 to 50.32. The MACD is descending below the signal line, which would suggest that the S&P could continue to decline during the immediate future.

On Thursday, all sectors declined. The financial sector took the hardest hit, falling 1.64 percent.

Consumer Discretionary (NYSEARCA:XLY): -0.71%
Technology: (NYSEARCA:XLK): -0.20%
Industrials (NYSEARCA:XLI): -1.19%
Materials: (NYSEARCA:XLB): -1.49%
Energy (NYSEARCA:XLE): -1.14%
Financials: (NYSEARCA:XLF): -1.64%
Utilities (NYSEARCA:XLU): -0.29%
Health Care: (NYSEARCA:XLV): -0.70%
Consumer Staples (NYSEARCA:XLP): -0.88%

Bottom line: Investors became more risk-averse on Thursday after the flash reading of the January Manufacturing PMI from Markit Economics declined for the first time since October.

John Nyaradi is the author of The ETF Investing Premium Newsletter.

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