The new year is turning out to be a BIG mess for the Stock (Equity) Market. If January, when the Dow lost more than 5%, was not bad enough, things became really crazy today when the Dow lost another 2%. The other two major Indexes were even worse off.
The Institute for Supply Management (ISM) said its index of national factory activity fell to 51.3 last month, to its lowest level since May 2013, from a recently revised 56.5 in December.
The January reading marked a second straight month of slowing growth from November’s recent peak reading of 57, which had been the highest since April 2011, suggesting the economy may be losing some of the momentum it had enjoyed in the second half of 2013.
Ok. Hitting an 8-month low in overall manufacturing/factory activity is not the end of the world so why did the markets go THIS crazy?
The biggest red flag in the ISM report was the huge drop in the forward-looking new orders index, which [had]… the largest monthly decline in that key component since December 1980.
The new-orders numbers within the ISM Index may have fallen so steeply (thus dragging down the overall ISM index) because firms rushed-in orders in 2013 to benefit from certain tax credits that expired year-end. In other words, when the ISM number was GREAT a few months ago (and the market as a result kept rising), it was merely business activity of 2014 rushed into 2013. The result? New orders plunging at the start of the new year. Hence the massive month-to-month drop not seen since the days of Carter.
Essentially, the Stock Market returned today some of its late 2013 gains that it should not have occurred in the first place.