(RTTNews) - Stocks remain firmly negative during early afternoon trading on Monday, with profit taking contributing to the weakness in the markets. The major averages are all posting steep losses after showing a strong upward move in the holiday-shortened week last week.

Some of the weakness in the markets comes on the heels of the release of the Institute for Supply Management’s report on activity in the manufacturing sector, which showed a worse than expected contraction in the sector.

The ISM’s index of activity in the manufacturing sector fell to 36.2 in November from 38.9 in October, with a reading below 50 indicating a contraction in the sector. With the decrease, the index fell to its lowest level since May of 1982.

“Global manufacturing is in its worst recession since at least 1980,” said Chris Low, chief economist at FTN Financial. “In the U.S., the recent strength of the dollar is a problem, but weak international demand and terrible domestic car sales are even bigger issues.”

Separately, the Commerce Department released its report on construction spending in the month of October, showing that spending fell by more than expected amid a notable decrease in spending on residential construction.

In an interview with RTT News, Peter Cardillo, chief market economist at Avalon Partners discussed the market’s sharp downturn on Monday, saying that it is “spooked” by disappointing global economic data and has great fear of deflation.

At the same time, Cardillo said he thinks we will see a Santa Clause rally despite very ugly jobs data and consumers scaling back in a big way. However, he advised investors to not be “over-enthused,” because outside of another 5 to 10 percent bounce, it’s going to be a trading range.

In other news, President-elect Barack Obama confirmed weeks of speculation by designating New York Senator Hillary Clinton as his Secretary of State and revealing that he would retain Robert Gates as Secretary of Defense.

Obama also selected Arizona Governor Janet Napolitano as his Secretary of Homeland Security and nominated Eric Holder, who served in Bill Clinton’s presidential administration, as the next Attorney General.

The holiday shopping season also has investors wary of the markets, as initial reports pointed to strong sales but showed that consumers were likely to wait for the lowest prices and were notably more cautious of their purchases. Analysts are still forecasting a very difficult season.

The major averages have moved to the downside in recent trading, pulling back to new lows for the session. The Dow is currently down 428.74 at 8,400.30, the Nasdaq is down 89.39 at 1,446.18 and the S&P 500 is down 52.48 at 843.76.

Sector News

While the resource stocks continue to post noteworthy losses on the day, brokerage stocks are also showing substantial declines, with the Amex Securities Broker/Dealer Index down 12.1 percent on the day.

The significant decline by the index comes amid massive losses by Morgan Stanley (MS), Raymond James (RJF) and Jefferies Group (JEF). Shares of Morgan Stanley are down 17.9 percent, while shares of Raymond James are down 16.7 percent and shares of Jefferies are down 15.4 percent.

With the price of crude oil down $4.35 at $50.08 a barrel and the price of gold down $44.30 at $774.70 an ounce, oil and gold stocks are seeing significant weakness. The Amex Oil Index and the Amex Gold Bugs Index are down 8.1 percent and 11.7 percent, respectively.

Steep losses are also being posted by other resource stocks as well as banking, electronic storage, and transportation stocks.

Stocks In The News

After showing a notable decline in the previous session, shares of STMicroelectronics (STM) are seeing some further downside in early afternoon trading. The chipmaker is currently down 6.4 percent after hitting its worst intraday level in ten years.

The continued decline by STMicroelectronics comes after the company revealed Friday that its fourth quarter revenue would be below the outlook provided in later October. The company said it now expects revenue for the quarter in the range of $2.2 billion to $2.35 billion.

Shares of Midway Games (MWY) are also under pressure on news that Sumner Redstone has sold his controlling stake in the videogame company to a private investor. The sale of the 87% stake in Midway to investor Mark Thomas was announced by Redstone’s holding company, National Amusements Inc.

With the massive sale, the stock has dropped 18.4 percent on the day. The reports noted that the stake sale is part of efforts to resolve Redstone’s debt problems.

Meanwhile, Mentor Corp. (MNT) is up 89.4 percent after Johnson & Johnson (JNJ) agreed to buy the plastic surgery firm for $31 in cash for each share of Mentor. The price is nearly double Mentor’s closing price on Friday.

The transaction has an estimated net value of $1.12 billion, including net debt. The deal, which has been approved by the boards of directors of both companies, is projected to close in the first quarter of 2009, pending a regulatory review and other customary conditions.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region closed mixed on Monday, with Japan’s Nikkei 225 Index ending the day with a loss of 1.4 percent, while Hong Kong’s Hang Seng Index closed 1.6 percent.

Meanwhile, the major European markets ended the day sharply lower, at their worst levels of the day. The French CAC 40 Index and the German DAX Index closed down 5.6 percent and 5.9 percent, respectively, while the U.K.’s FTSE 100 Index posted a loss of 5.2 percent.

In the bond market, treasuries have come off their highs of the day but remain firmly in positive territory. Subsequently, the yield on the benchmark ten-year note is currently down 12.3 basis points at 2.834 percent.

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Posted in Categories: Economy, Eurozone, Japan, Releases, USA.

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