After The Close - The major U.S. equity indexes began today’s session in the red, but managed to pare most of their losses by late afternoon.
This morning’s jobs report apparently set the tone for the day. Specifically, U.S. payrolls only added 20,000 positions in February, coming in well below expectations and marking the smallest increase in 17 months. The biggest declines came in construction (down 31,000), retail (-6,000) and government positions (-5,000). On the plus side, the unemployment rate edged down to 3.8%, not far from the 50-year low of 3.7% reached last year. Most of the improvement reflected government workers returning to their jobs in the wake of the federal shutdown in January. The other good news for those with jobs is that average hourly wages were up 3.4% over the last 12 months, which was the largest rate of increase since the recession ended in 2009.
Elsewhere, the Commerce Department announced that housing starts ticked up in January, to a seasonally adjusted annual rate of 1.23 million units. This was a 19% increase from December, but 7.8% below the year earlier figure. Also of note, construction permits (a more forward looking measure) came in at an annualized rate of 1.345 million, up 1.4% compared to the revised December figure of 1.326 million.
At the closing bell, the 30-stock Dow Jones Industrial Average, after being down as many as 220 points shortly after the open, had pared its losses to 23 points. The broader S&P 500 was off by 6 points, and the tech-heavy NASDAQ lost 13 points. Nearly all of the major market sectors lost ground, with the largest declines coming from energy stocks which were down 1.6%. Oil prices took a hit, with light sweet crude trading down 1%, to a little over $56 a barrel. Meanwhile, telecom issues gained a quarter of a percentage point, while utilities ended a little above breakeven.
Trading on the European bourses was also negative today, following reports of a slowdown in Germany’s industrial sector and the prior-day’s announcement from the European Central Bank that it had cut its growth forecast for the Continent. Germany’s DAX, France’s CAC-40, and Britain’s FTSE 100 shed between half to three-quarters of percent each. – Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
10:30 AM EST - The stock market, on a rare three-day losing streak this year, promptly fell back further yesterday as it drove early to make it four down days in succession. A reduction in growth expectations for 2019 by the European Central Bank was the headline event in the downturn, which topped 300 points in the Dow Jones Industrial Average as we passed the first hour of trading. The inability of the United States and China to yet complete a trade accord and some spotty economic reports as the Street awaited the latest monthly non-farm payroll data that was just released (see below) were additional worries.
Of course, there is still plenty of room for the market to fall. On point, the major averages all began the penultimate trading session of the week comfortably in positive territory for the year to date, with the Dow Industrials holding a 10% gain for the first two plus months of 2019. Also, the S&P 500 Index was ahead by 10.6% and the NASDAQ was better by 13.1%. Meanwhile, the cut in the ECB growth expectations for the euro zone was disheartening; with the 2019 forecast being pared from 1.7% (made in December) to 1.1%. The ECB reduction came as countries around the globe are expressing growth concerns.
Not surprisingly, yields on Treasury issues were falling, as well, with the 10-year Treasury note seeing its yield fall to 2.65% in the morning. Just a day ago, the return was sitting at 2.73%. Many volatile issues fell in tandem. To be sure, the stock market was overbought following two months of almost uninterrupted stock market advances. Still, the rapid descent yesterday morning did unnerve some traders. Another problem was the sudden surge in the U.S. trade deficit. To wit, in a report released on Wednesday, the government indicated that our trade imbalance surged in December to a 10-year high of almost $60 billion.
The jump in the trade deficit and the reduced ECB growth rate really seemed to shake up the once-calm and confident stock market investors. Now, the question is just for how long. And seemingly, as the morning progressed, the bears became less confident, as the worst early losses, in which the Dow was off some 300 points eased, and at just past 1:00 PM (EST), that composite had pared its deficit more than in half. But the selling would pick up again in mid-afternoon, with the Dow falling back to a loss of over 250 points. The NASDAQ's loss, meantime, ascended the 100-point mark.
The market would make one last attempt to pare its closing losses as the final bell sounded, but alas the Dow would still drop by just over 200 points--the second such loss in the past four days. Only this one felt worse, with the S&P 500 Index down 23 points and the NASDAQ lower by 84 points, after earlier descending by 108 points. Jitters about the just-released employment report also contributed to the afternoon weakness. Put into perspective and considering how far and how fast the leading averages have risen this year, this week's respite has not been all that large or even significant to this point.
Now, a new day begins in our country, and ahead of the major economic report just issued, we see that shares in Asia were notably lower in the overnight hours on weak data out of China, while in Europe, the early action was weak, as well, on the ECB economic outlook revisions. Elsewhere, oil, a gainer yesterday, is off about 2% on the weaker global outlook so far today, and Treasury note yields, off sharply yesterday, are down again on global and domestic economic concerns. As to the employment situation, the government reported that non-farm payrolls increased by just 20,000 in February; expectations had been for a gain of 185,000 jobs. At the same time, the unemployment rate eased from 4.0% to 3.8%, most likely as fewer workers sought employment.
In other issues of note in this report, non-farm payrolls for December were revised up from 222,000 to 227,000, while job gains in January were revised up from 304,000 to 311,000. So, there was not much change there. But the February tally was a real shocker, with the addition of just 20,000 new jobs. Still, average hourly earnings gained $0.11 and the labor-force participation rate stayed at 63.2%. Taken together, though, this was a very disappointing report and the stock market opened the session sharply lower. - Harvey S. Katz, CFA