The Dow fell 1.11% as US traders tried to find their way through the latest geopolitical fire, this one burning in Israel and Gaza. Asian shares were already on their way down though Tuesday, given soft manufacturing data and a new property tax roll out.
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Israel & China Weigh on Stocks
ISM Manufacturing Report
ISM's Manufacturing Report for May offered positive news Tuesday. ISM's Purchasing Managers Index gained to 59.7%, surpassing economists' consensus expectations for 59.5%, based on Bloomberg's survey (Barron's reports 59.0%). May's figure fell short though of April's watermark, set at 60.4%. Still, May was only second to April, when examining the last 12 months worth of data. The reading, well above the 50.0 break-even point for economic expansion, offered further reason for cheer within its details.
Manufacturing sector growth expanded for the tenth consecutive month, according to ISM's analysis. Sixteen of the 18 manufacturing industries ISM measures reported growth in May, in the following order: Paper Products; Wood Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Computer & Electronic Products; Furniture & Related Products; Miscellaneous Manufacturing; Plastics & Rubber Products; Primary Metals; Printing & Related Support Activities; Chemical Products; Nonmetallic Mineral Products; Machinery; Apparel, Leather & Allied Products; and Food, Beverage & Tobacco Products. The only industry reporting contraction in May was Petroleum & Coal Products.
New Orders remained strong, as the component index measured 65.7% for the second consecutive month. Production slipped ever so slightly, to 66.6% from 66.9. Manufacturers again reported sales that exceeded budget in several sectors, and so employment is improving. The Employment Index gained a full point to 59.8, signaling manufacturing will continue hiring. May's Employment Index continued a trend of job growth in manufacturing, with six consecutive months worth. Exports are stronger, while imports are lighter. Order backlogs look improved and the inventory situation seems to indicate restocking is needed. In other words, things seem solid in the manufacturing sector.
The final months of the First-Time Homebuyers Tax Credit drove sales of existing and new homes through April, while eating into new home inventory levels significantly. This apparently drove a spike in homebuilder construction spending in April, as activity increased 2.7%. April's increase came on top of March's growth of 0.4% and against economists' consensus view for no change. This was another positive for stocks Tuesday, but with all eyes on the forward month data that will not have the benefit of the special tax incentive, they could only move so much. Besides, construction spending was still 10.5% lower than April of 2009.
The Shanghai Composite Index slipped 0.9% on Tuesday, after the China Federation of Logistics and Purchasing reported China's PMI fell in May to 53.9, versus 55.7 in April. News also emanated from a government run paper that China would launch trials of a new property tax in two provinces. Shares fell across Asia, as worries mounted that the big engine was being idled.
The repercussions of Israel's raid on a private vessel carrying aid for Gaza have the world up in arms. Turkey, where most of the ship's crew hailed from and where its dead also hailed, pulled its ambassador and other diplomats and canceled joint military exercises. Jordan was outraged, as was the entire Middle East. Egypt opened up its border to Gaza as a show of support. Western nations were a little less emphatic, with Netanyahu visiting Obama, but Great Britain called for an end to the blockade. Before the day was through, reports came in that Lebanese anti-aircraft fired upon Israeli planes that buzzed Lebanese territory.
Corporate News Drivers
Lufkin Industries (Nasdaq: LUFK) split 2-for-1 and Inergy Holdings (Nasdaq: NRGP) 3-for-2. Juniper Networks (Nasdaq: JNPR) announced it would simplify its data center networks for its customers, allowing legacy systems to be fazed out. JNPR shares slipped 6.7% on the day. Apple (Nasdaq: AAPL) CEO Steve Jobs is one of many tech big shots at the Wall Street Journal's All Things Digital Conference.
The earnings schedule included reports from Bank of Nova Scotia (NYSE: BNS), Collective Brands (NYSE: PSS), Hawkins Inc. (Nasdaq: HWKN), Kohlberg Capital (Nasdaq: KCAP), Lion's Gate Entertainment (NYSE: LGF), MVC Capital (NYSE: MVC), Targeted Genetics (Nasdaq: TGEN) and Westport Innovations (Nasdaq: WPRT). Auto makers report May sales on Wednesday (NYSE: F, NYSE: HMC, NYSE: TM, NYSE: DAI, NYSE: TTM, Nasdaq: NSANY).
The day's biggest price gainers were Jones Soda (Nasdaq: JSDA), Zion Oil & Gas (Nasdaq: ZNWAW), Birks & Mayors (AMEX: BMJ), Hallador Energy (Nasdaq: HNRG), eLong (Nasdaq: LONG), Versar (AMEX: VSR), Mediacomm Communications (Nasdaq: MCCC), Golfsmith Int'l (Nasdaq: GOLF), eV3 Inc. (Nasdaq: EVVV), Astea Int'l (Nasdaq: ATEA), Abraxis Bioscience (Nasdaq: ABII), Universal Display (Nasdaq: PANL), Hurray Holding (Nasdaq: HRAY), Patrick Industries (Nasdaq: PATK), Engex Inc. (AMEX: EGX), PROLOR Biotech (Nasdaq: PBTH), NL Industries (NYSE: NL), Direxion Daily Energy Bear 3X (NYSE: ERY), Mesa Laboratories (Nasdaq: MLAB), WSP Holdings (NYSE: WH), Community Partners Bancorp (Nasdaq: CPBC), CFS Bancorp (Nasdaq: CITZ), WCA Waste Corp. (Nasdaq: WCAA), Nobility Homes (Nasdaq: NOBH) and Columbia Laboratories (Nasdaq: CBRX).
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