Dow Plummets After Fall in Chinese Economic Activity

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 Dow Jones Industrial Average (DJINDICES: ^DJI  )  was down 199 points, to 16,174, at 1:30 p.m. after weaker than expected reports on economic activity in the U.S. and a seeming contraction in economic activity in China. The S&P 500 (SNPINDEX: ^GSPC  ) was down 21 points to 1,823.

There were four U.S. economic releases today.

Report

Period

Result

Previous

Markit "flash" PMI

January

53.7

55.0

FHFA home prices

November

0.1%

0.5%

Existing home sales

December

4.87 million

4.82 million

Markit's flash purchasing managers index for the U.S. fell to 53.7 in January, signaling economic expansion but at a slower rate than in December. Analysts expected the PMI to repeat the December reading of 55. Also disappointing on the U.S. front, the Federal Housing Finance Agency reported home prices increased just 0.1% in November, below analyst expectations of 0.4% growth and below October's 0.5% growth. Year-over-year FHFA home prices were up 7.6%. Lastly, existing home sales for December came in at seasonally adjusted annual rate of 4.87 million, below a revised rate of 4.82 million in November and missing analyst expectations of 4.94 million.

While the U.S. economic numbers were all weaker than expected, the market was also driven down after HSBC reported Chinese manufacturing activity decreased in January.

Report

Period

Result

Previous

HSBC Manufacturing Flash PMI

January

49.6

50.5

A PMI level above 50 indicates economic expansion, while numbers below 50 indicate contraction. The higher the number is above 50 the faster the growth, and vice versa for below 50. The flash estimate includes roughly 80% of the final survey responses, so it could be revised upward when HSBC's final manufacturing PMI is issued on Jan. 30. The Chinese National Bureau of Statistics manufacturing PMI is released the following day. Economists were surprised by the contraction and gave multiple ideas for why it may have occurred. Basically, though, no one is quite sure if and why the Chinese economy contracted, so we'll need to wait for more data.

Leading the Dow's fall today are financial stocks, with JPMorgan Chase, Goldman Sachs, Visa, and American Express all down more than 2%. Visa and Goldman Sachs are two of the top three stocks on the Dow by weight because of their large stock price, so their fall is hitting the blue-chip index extra hard.

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