Recession almost confirmed - ISM contraction hits US Markets

Dow witnesses its worst day in a year as data shows contraction in business activity

It was just one economic report that dictated all terms in the US Market today, 05 February, 2008. And the report was dismal in nature as it sent clear signals of recession hitting the US economy. The Institute for Supply Management's non-manufacturing index showed a contraction in business activity in January, 2008. Led by Financial US Market reacted sharply to this report and all three indices posted huge loss for the day.

The Dow Jones industrial Average ended the day with a huge loss of 370 points at 12,265.13. The Nasdaq Composite Index, finished lower by 73.28 points at 2,309.57. S&P 500 finished lower by 44.18 points at 1,336.64. All of thirty Dow stocks ended in the red today. American Express, AIG, Citigroup and JP Morgan Chase led the team of Dow laggards, all shedding more than 4%.

Early morning, it was reported that, The Institute for Supply Management's index of non-manufacturing plummeted to 41.9 in January, 2008 from 54.4 in December, its largest monthly decline on record. The decline in the index reignited fears that the U.S. economy was in a slowdown. A number below 50 reflects a contraction. Market was expecting a figure of 53 for the month of January.

Recession concerns were further fuelled by the realization that the January report marked the first contraction in the non-manufacturing sector in nearly five years.

Strikingly enough, the dollar shrugged off this report and it ended higher against the rivals as it embraced the news about a slowdown in Europe. For the Dow, today’s loss worst percentage decline for the Dow since February 2007. It was also its worst point drop since August.

The ISM report came on the heels of a drop in employment in January and a much weaker-than-expected estimate of fourth-quarter economic growth.

All Indian ADRs ended in red today, dropping between 4% to 7%. Percentage wise, VSNL, Tata Motors and Infosys Technologies were the hardest hit.

In the after hours trading, a decent earnings report from Dow component Walt Disney offered investors some relief.

Crude prices slipped today as weak economic data fuelled recession concerns and this led to questioning of the demand for crude in coming months. Prices slipped ore than $1.5/barrel. Crude-oil futures for light sweet crude for March delivery today closed at $88.81/barrel (lower by $1.66/barrel or 1.8%) on the New York Mercantile Exchange. Prices are 51% higher than a year ago. Earlier it fell to a low of $87.5/barrel.

Trading volumes showed 1.6 billion shares exchanging hands on the New York Stock Exchange, with declining issues topping gainers by a ratio of 4 to 1. On the Nasdaq, 2.5 billion shares traded, with decliners topping gainers by nearly 4 to 1.

Tomorrow's economic report of focus is the fourth quarter productivity report at 8:30 AM ET. The report provides a measure of labor efficiency growth, which is necessary in offsetting inflationary pressures amid expanding economic activity.