MarketView for December 2

Summary

It was red ink across most of the major equity indexes on Monday, with the Street unable to find new reasons to keep pushing shares higher after eight straight weeks of gains, while the mining sector slid alongside sharp drops in precious metals prices. The major indexes hovered near break-even levels for much of the day after some encouraging economic data limited early losses, but turned lower in the last hour of the trading day.

Equities have rallied in recent weeks on expectations of continued stimulus from the Federal Reserve. The S&P 500 has risen for eight straight weeks, its longest run since a nine-week climb between November 2003 and January 2004, putting its yearly gain at nearly 27 percent. Both the Dow Jones Industrial Average and the S&P 500 have hit repeated all-time highs this year.

The Institute for Supply Management (ISM) said its index of national factory activity rose in November to its best showing since April 2011, while the pace of hiring in the sector also accelerated. In addition, construction spending increased 0.8 percent in October, the highest since May 2009.

Mining companies' shares fell in sync with a slide in precious metal prices. Gold ended the day down 2.6 percent. Silver fell 4.2 percent.

Hecla Mining was down 6.1 percent to end the day at $2.77 while shares of Silvercorp Metals fell 5.1 percent to $2.41. Freeport-McMoRan Copper & Gold was down 1.2 percent to close at $34.26.

Dow component 3M fell 4.4 percent to $127.68 after Morgan Stanley downgraded the stock to "underweight" from "equal weight."

On the upside, Forest Laboratories ended the day up 9.8 percent to close at $56.32 as the S&P 500's biggest percentage gainer after the company said it plans to buy rights to a new schizophrenia treatment from Merck and cut its annual operating costs by $500 million in fiscal 2016.

Retailers will stay in focus as the holiday shopping season ramps up. Heavy discounting took a toll on U.S. retail sales during the Thanksgiving weekend as shoppers spent almost 3 percent less than they did a year earlier, according to an industry group.

Manufacturing Sector Expands

According to the Institute for Supply Management (ISM), the manufacturing sector expanded at its fastest pace in 2-1/2 years last month, while the pace of hiring in the sector also accelerated. The ISM indicated on Monday that its index of national factory activity rose to 57.3 in November - its best showing since April 2011 - from 56.4 the prior month.

November was the sixth consecutive month of quicker growth in the goods-producing sector since a contraction in May, with growth accelerating after the partial U.S. government shutdown that limited activity in October. A reading above 50 indicates expansion.

The forward-looking new orders index jumped to its highest level since April 2011, rising to 63.6 from 60.6. The employment index rose to 56.5 from 53.2 to reach the highest level for the sub-index since April 2012. Production rose to 62.8 from 60.8.

The latest ISM report mirrored a separate index released on Monday by financial data firm Markit, which showed manufacturing rebounding to a 10-month high in November.

The two surveys use somewhat different methodologies, including the one related to seasonal adjustment.

Construction Up

The Commerce Department reported on Monday that construction spending rose to its highest level in nearly 4-1/2 years in October as a rebound in public construction projects offset in drop in private outlays. Specifically, construction spending increased 0.8 percent to an annual rate of $908.4 billion, the highest level since May 2009.

Construction spending fell 0.3 percent in September. The release of the September report was delayed by a 16-day partial shutdown of the government in October. Construction spending in August was revised to show a 0.1 percent rise instead of the previously reported 0.6 percent increase and construction spending in October was buoyed by a 3.9 percent jump in public construction projects, the largest increase since March 2004, after a 1.9 percent fall in September.

Public construction spending saw a 3.2 percent increase in state and local government outlays, the largest advance since February 2009, suggesting a major improvement in finances after years of belt-tightening. A 10.9 percent increase in spending on federal government projects also supported public construction spending in October.

The increase in spending on federal construction projects was the largest since January 2011. Spending on private construction projects fell 0.5 percent, pulled down by declines in both residential and nonresidential outlays. That could be a sign that high interest rates were starting to have an impact on the economy, which bodes ill for investment in both residential and nonresidential structures in the fourth quarter.