Dow Falls on Plunge in New Orders
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The major indexes are down after mixed reports from the services and manufacturing sectors. As of 1:30 p.m. EST, the Dow was dropped 37 points to 16,432. The S&P 500 dropped five points to 1,826.
There were two U.S. economic releases today.
ISM nonmanufacturing index
The gain in factory orders was expected, as numerous other recently released measures of the manufacturing sector have shown growth in November. The one to pay attention to today is the unexpected drop in the Institute for Supply Management's nonmanufacturing index. A level above 50 indicates economic expansion while a reading below 50 indicates contraction.
Analysts had expected the index to rise to 55%, but it instead fell to 53%. That indicated continued growth but a slowdown from November.
The index was pulled down by a 7 percentage point drop in the new orders component, from 56.4% to 49.4%. This is the first contraction in new orders since July 2009. New orders were up in just six industries (management of companies and support services; retail trade; information; public administration; construction; and finance and insurance) and were down in the 11 other industries the Institute for Supply Management tracks. New export orders saw a similar 6.5 percentage point drop but remained growing at a reading of 51.5. New export orders are not as reliable as the overall number, as 65% of respondents said they do not separately measure orders for exports.
The final large mover was a 6 percentage point drop in the ISM's nonmanufacturing inventories index. Inventories fell from 54% in November to 48% last month, indicating contraction. This was the inventories index's first contraction in 10 months. Contraction means the services sector is using up inventory and not replenishing it, which was to be expected somewhat after the large seasonally adjusted inventory build we saw in the third quarter.
Overall, the ISM nonmanufacturing index is still showing solid growth, but investors should keep their eye on the report to see if new orders continue to contract. Slowdown in that index would be worrisome at a time when there are multiple risks to the economy, including rising interest rates, slowing activity in China, and high oil prices.
Millions of Americans have waited on the sidelines since the market meltdown in 2008 and 2009, too scared to invest and put their money at further risk. Yet those who've stayed out of the market have missed out on huge gains and put their financial futures in jeopardy. In our brand-new special report, "Your Essential Guide to Start Investing Today," The Motley Fool's personal finance experts show you why investing is so important and what you need to do to get started. Click here to get your copy today -- it's absolutely free.
The article Dow Falls on Plunge in New Orders originally appeared on Fool.com.Dan Dzombakcan be found on Twitter @DanDzombakor on his Facebook page,DanDzombak. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.