But optimsim soon faded as a fresh data from the Institute of Supply Management showed activity in the manufacturing sector slowing to its lowest level since July 2009, when the recession ended. Stocks turned sharply negative, with the Dow down 1.14 percent in late morning trading, the S&P down 1.18 percent and the Nasdaq down 1.13 percent.
The quick turn-around means the the debt deal is “almost irrelevant” to the markets, said Philip Roth, chief technical market analyst at trading firm Miller Tabak in New York. “Once it’s done, people focus on the economy. And it’s slowing,” he added.
One element of the debt deal has significant relevance to the defense industry, which relies on government spending for much of its business. The deal’s calls for up to $600 billion in cuts to the U.S. defense budget, sending the Standard & Poor’s 500 Aerospace & Defense Index into negative territory shortly after market open. It remained down more than 1.6 percent in late morning trading.
Stocks of Lockheed Martin and Northrop Grumann, two flagship U.S. defense contractors, traded down 2.09 percent and 2.38 percent, respectively, to $74.15 and $59.07 per share in late morning trading.
Investors also headed back to their safety bets in late morning trading Monday, reversing an earlier retreat on news of the debt deal. Spot gold prices retreated somewhat from Friday’s $1,627.88 per Troy ounce but remained high at $1,619.20 in afternoon trading. Yields on the 10-year Treasury reached a new low for the year of 2.74 percent after retreating higher over the weekend. A lower yield means investors are willing to accept a lesser return in exchange for the safety of holding government debt.
The U.S markets’ reaction contrasted with an earlier rally in Asia, where major stock markets posted across-the board gains on news of the debt deal. Disaster-hit Japan saw a particularly strong gain as the country’s Nikkei 225 stock posted its largest gains since June, making up for a steady decline last week. The Nikkei opened at 9907.04, spent most of day above the critical 10,000 mark, then fell a bit in the final hour of trading, closing at 9965.01 — still up 1.34 percent. Later in the day, Hong Kong’s Hang Seng index had risen 1.6 percent and Australia’s ASX/200 Index had jumped 1.65 percent.
European markets also jumped on the news of the U.S. debt deal, with early gains in key indexes in London, Paris and Frankfurt. But economists warned that the boost could be short-lived. The deal in Washington did nothing to relieve fundamental concerns that the U.S. economy is fragile, as shown in the slower-than-expected growth reported last week, and may yet tip back into recession. And Europe has yet to definitively cure its own debt crisis, with concerns lingering about the details of a major deal on Greece and fear that the massive but troubled economies of Spain and Italy could get swept more deeply into the crisis.