The Dow Jones Industrial Average Index or DJIA gained a marginal 0.06% today to close trading just below 27,000. The S&P 500 Index closed flat. Tech ETFs XLK, SOXX, and SMH returned 0.34%, 1.2% and 0.87%, respectively, today.
The DJIA was trading lower earlier in the day as investors got spooked by Europe’s grim economic data. The IHS Markit Eurozone PMI (purchasing managers’ index) fell to 45.6 in September 2019, down from 47.0 in August 2019. The PMI came in below market estimates of 47.3, according to Trading Economics. A PMI score below 50 indicates an economic contraction.
The report states, “The latest reading pointed to the steepest contraction in the manufacturing sector since October 2012 as output fell the most since December 2012. In addition, new orders declined at the fastest rate since July 2012, due to further steep loss of export sales.”
Plus, market sentiment in manufacturing for the rest of 2019 is at its lowest level since 2012. This massive indicator of a slowdown or economic contraction rattled investors and sent the DJIA lower in early market trading.
Why the DJIA might undergo a correction
The European Central Bank’s incoming President Christine Lagarde has expressed concerns about the ongoing trade war between the world’s two largest economies, China and the US. According to Lagarde, the trade war has played a big part in the sluggish macroeconomic situation affecting several economies, including the European Union.
Lagarde expects the trade war to negatively impact global GDP growth by 80 basis points in 2020, putting several economies at risk. The IMF expects global economic growth in 2019 to be the lowest in nearly a decade.
Uncertainty over Brexit could also mean a recessionary environment sooner rather than later. How long can the DJIA keeping moving forward when we’re seeing several slowdown indicators at the global and domestic levels?
Biggest movers in the DJIA
Of the 30 stocks in the DJIA, eleven ended the day in the red. Boeing (BA), Merck (MRK), Pfizer (PFE), United Health, and Walgreens (WBA) were the biggest losers in the Dow today. Meanwhile, Boeing fell 0.6%, Merck, Pfizer, United Health, and Walgreens slumped 0.9%, 1.0%, 1.8%, and 1.2%, respectively, on September 23. The DJIA’s top gainers included Nike (NKE), American Express (AXP), and McDonald’s (MCD)—which rose 1.2%, 1.2%, and 1.0%, respectively.
Indonesia blames Boeing’s design flaw for crash
According to the Wall Street Journal, Indonesian investigators have attributed the 737 Max Lion Air crash to a faulty design, in addition to pilot and maintenance mistakes. We know the Lion Air crash was the first of two plane crashes involving the 737 Max 8.
Several countries banned the 737 Max jet, which was one of Boeing’s fastest-selling aircraft before the ban. Boeing stock fell over 26% between March and August this year. Despite the recent pullback, the stock has gained 19% year-to-date. Boeing has a significant impact on the DJIA’s movements, as it accounts for 11.3% of the index.