Courtesy of John Nyaradi.
Markets continued to correct today amid declining number of unemployment claims and negative Eurozone and Chinese PMI reports.
Mjor indexes and index ETFs continued their correction today, as the S&P 500 lost .72%, the Dow Jones Industrial Average declined .6%, the NASDAQ composite lost .39%, and the Russell 2000 Index registered a 1.02% decrease. Index ETFs naturally continued to correct themselves as well, as the SPDR S&P 500 Index ETF (NYSEARCA:SPY) lost .72%, the SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) declined .63%, the PowerShares QQQ Trust Series 1 ETF (NASDAQ:QQQ) declined .21%, and the iShares Russell 2000 Index ETF Fund (NYSEARCA:IWM) declined .96%.
If this correction/sell-off/pain continues into tomorrow, then markets will have had the worst week so far in 2012. Considering what has happened with Europe and Greece lately and with what continues to happen with China and Europe now, it is about time US markets began to feel the heat. PMI reports (Purchasing Managing Index indicators) released from China and Europe today symbolize such heat.
China’s apparent slowdown has been the huge news this week, and China’s PMI report released today did not help soothe investor worries that China is “ok.” China’s PMI dropped for the 5th month in a row to 48.1, a few points below the psychological “50″ mark, which indicates economic contraction. I am having a hard time understanding how an economy which continues to grow at approximately 7%a year can contract, as any growth above 3% in the West would be astronomical. However, perhaps investors are clinging to China as the last bastion of hope in the world right now, so any sneeze by China is bound to be met by sharp criticism and worry. At the end of the day however, 7% growth by any measure is still nothing to sneeze at, even if China’s growth used to be higher.
The Eurozone also reported a negative PMI today, the report suggested a possible recession and economic contraction throughout the Eurozone. This should come as no surprise to anyone, just look at the past few months. The Eurozone PMI rests at 48, two points below the “50″ mark, indicating that the Eurozone is on the brink of economic contraction as well (surprise surprise).
Despite the doom and gloom of world economics, the US saw a decrease in number of new unemployment claims last week, as the number of unemployment claims dropped 5000 claims to rest at 348,000 claims, a new four year low. Although this report did not improve US market sentiment, this is still very good news for us here at home.
So, one could argue that US markets are simply overbought and are in a dire need of a correction, or that US markets are finally reacting to outside pressures of the world. Despite both scenarios, the US economy itself continues to improve. Most likely, today’s markets are a mix of both correction and overbought sentiment mixed with a hint of fear and worry about the world at large. At any rate, one must stay defensive and continue to move forward in a cautious manner.
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