Investors unnerved by poor factory data

CYCLICAL sectors led US stocks lower yesterday, setting the S&P 500 up for its first negative week in six, after factory data showed a slowdown in both the Eurozone and China.

The weak data is hardly a surprise for markets, as many analysts have already factored in a recession in the Eurozon and early this month, China trimmed its 2012 growth target to an eight-year low of 7.5 per cent.

However, investors were unnerved by the drop in new orders in both regions, which highlighted concerns that an unexpectedly severe downturn could hurt the global recovery.

The drop in demand fuelled calls for the pullback in stocks after the S&P 500 scored 10 weeks of gains out of this year’s 11 weeks so far. The benchmark index is still near four-year highs hit on Monday.

“The advance we’ve had so far this year is not sustainable, and the market is taking a little breather,” said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

“The market could easily come down three to five per cent and still be within the context of an improving economy and continue to work higher,” he said.

FedEx shares dragged down the Dow Jones Transportation Average after the world’s second-largest package delivery company warned of a lower outlook, due in part to Europe's weak economy.

The S&P energy sector fell 2.1 per cent and the basic materials sector dropped 1.6 per cent.

US stocks have risen sharply this year, due in part to a steady string of better-than-expected US economic data. Next week, the S&P 500 could wrap up its best back-to-back quarters since mid-2009.

The Dow Jones industrial average fell 78.48 points, or 0.60 per cent, to 13,046.14 at the close. The S&P 500 Index dropped 10.11 points, or 0.72 per cent, to 1,392.78. The Nasdaq Composite lost 12.00 points, or 0.39 per cent, to 3,063.32.

It was the first close below 1,400 for the S&P 500 in six sessions. About 6.3bn shares changed hands on the New York Stock Exchange, the Nasdaq and Amex, compared with the current daily average for 2012 of about 6.86bn shares. FedEx fell 3.5 per cent to $92.50. The Dow Jones Transportation Average lost 2.1 per cent. Blue-chip McDonald’s fell one per cent to $95.80 a day after the world’s biggest hamburger chain said chief executive Jim Skinner is retiring after seven years at the helm.