The market finished relatively flat on the first trading day of the new month. However, the Dow was down over 100 points at its worst before recovering towards to close. The news on the economic front was mixed. Not surprisingly, the ISM index dropped to 48.3 in February, indicating a contraction in the manufacturing sector. But that number still managed to beat expectation. It actually provided some relief to the market as some on the Street had feared a number in the range of 42 to 44 as recent dismal regional reports suggested. Separately, the Construction Spending dropped 1.7% compared with a drop of 0.7% expected. The worse reading was mostly driven by a decline in residential sector. For the rest of this week, the market is going to face several more tests from the economic front. Most noticeably, investors will pay close attention to the ISM Services survey on Wednesday(just a reminder: the previous month’s ISM Services report caused the Dow to tumble 370 points, the largest single day decline so far in 2008) and Nonfarm Payrolls on Friday.

Although the indices were little changed, the sectors were traded in split fashion. Commodity stocks were doing well following a new record in the CRB index --- both oil and gold hit new historical high again. Financials and technologies were under pressure. The former was dragged by continuing stress in the credit market, which fared poorly in February as ABS and CMS spreads hit records. The spread between high yield bond and treasury also hit a new multi-year high last week, which stands at close to 800bps now compared to around 350bps one year ago. Technologies were mainly dragged by the “Big Four”, namely Google, Bidu, Rimm and Apple. The “Big Four” had a great time in the second half of 2007 as hedge funds chased those stocks for better performance. Obviously money is flowing to somewhere else these days.