After The Close - It was a seesaw session of trading to end what could be termed a blasé four-day stretch on Wall Street. It seems that complacency among traders has become the norm these days, with neither major news from the U.S. business beat nor from the international community—and we had such on each account this week—igniting a fire under traders. All week long, trading volume was low and the moves were quite muted, despite some noteworthy headlines, including today’s much anticipated report on the U.S. labor market (see below).
As noted, investors were taken on a bit of a rollercoaster ride today, though the swings in the direction of trading were not very pronounced or for that matter swift. Indeed, off of yesterday’s late-day selling, the market averages opened on a flat note, with investors thinking—and may be rightfully so—that a weak jobs creation report for the month of August will keep the Federal Reserve firmly wedded to its low interest-rate policies, which are typically a good backdrop for equities. But shortly thereafter, the sellers returned to the market and the major equity indexes fell into the red. However, about midway through the sessions, investor sentiment turned bullish again and the averages moved north. By the closing bell, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index were all modestly higher and not too far removed from where they started the abbreviated trading week. The broader S&P 500 Index did finish at a new closing high for the 33rd time in 2014.
From a sector perspective, there was a lot to like, as it was all up arrows for the top-10 groups. Leadership came from some of the more defensive-oriented sectors, including the utilities, telecommunications, and consumer staples group. By the looks of recent trading, we think there is a portion of investors who are growing skeptical about how much higher the market can go. But because there are very few attractive investment alternatives right now, they are staying in equities and perhaps doing some sector rotation. The technology group also turned in a nice showing today, mostly on the strength of the stocks of the software and social networking companies. Within the latter space, shares of Facebook (FB) and Twitter (TWTR) were higher and among the most active issues on Wall Street today. We also learned this afternoon that shares of Alibaba, which Yahoo! (YHOO) owns a significant stake in, will begin trading September 19th on the New York Stock Exchange under the ticker “BABA.” The IPO will be priced on September 18th.
The day’s big news came the U.S. government before trading commenced on the shores. Specifically, the Department of Labor reported that nonfarm payrolls increased by an underwhelming 142,000 last month and the unemployment rate fell from 6.2% in July to 6.1%. The expectation was that the nation would add about 225,000 last month, so today’s figures were very disappointing and yet another indication that the U.S. economy is growing, but the advance is not as formidable as many economists would have expected at this stage of the up cycle. However, the jobs creation data, which at times can be a game changer for the equity market, did not have a major effect on trading as it has had in recent years. This bears watching, as a complacent attitude by traders and signs of investor fatigue often materialize ahead of a period of selling. The S&P 500 Volatility Index (or VIX), which ended the week just above 12, suggests that the market is clearly overbought and could be ripe for some profit taking in the weeks ahead if the news from the economic and international fronts failed to cooperate.
Although that the month of September has historically been a difficult one for traders, the equity market has moved higher in eight of the last 10 Septembers. The first trading week of September did not provide us many clues about which direction the market is likely to head this month, as the major averages did not finish too far removed from where they started the week on Tuesday. Investors should note that next week will be a very light on both earnings and economic news—the only notable report coming next Friday on retail sales—so traders may be looking more closely at international affairs, which, to say the least, have not made for an encouraging reading over the last few months. - William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
12:25 PM EDT - The U.S. stock market is putting in a mixed performance today. At just past noon in New York, the Dow Jones Industrial Average is up two points; the broader S&P 500 Index is flat; and the technology-heavy NASDAQ is lower by five points. Market breadth suggests a neutral bias to the session, with declining stocks just about even with advancers on the NYSE. Quite a few equity sectors are trading lower, including the healthcare issues and the financials. However, the high-yielding utilities are having a good day. The technology sector is making some progress, as well.
Generally, the stock market has been holding steady. Equities have run into some temporary resistance lately, and have been moving sideways for the past several sessions. Still, we have seen no major selling and sentiment appears to be constructive. The VIX is off slightly, at 12.53, today, and remains at very low levels.
Meanwhile, traders received a key economic report this morning. Specifically, nonfarm payrolls showed an increase of 142,000 for the month of August, where analysts had been looking for a much a larger gain. It should be noted that the unemployment rate dipped to 6.1%, which met expectations and was an improvement from the prior month’s reading. Given the ho-hum Automatic Data Processing (ADP) employment figures released yesterday, many traders may have been anticipating today’s disappointing news. Too, some traders may believe that this month’s light employment report will make it difficult for the Fed to tighten its monetary policy.
Finally, traders received limited corporate news this morning. However, Zumiez (ZUMZ) stock is trading lower, after the retailer issued disappointing guidance late yesterday afternoon. Also, the Gap (GPS) is seeing its stock slip after the apparel retailer reported sluggish monthly same-store sales. - Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Stocks To Watch From The Survey - Retailers will probably garner a lot of attention from Wall Street this morning, with a couple of players releasing recent results. Unfortunately, little of the news was not good. Specifically, apparel retailer Zumiez Inc. (ZUMZ) may well see some resistance despite posting better-than-expected second-quarter results after the closing bell yesterday. Indeed, the stock has dropped significantly in overnight trading after management provided disappointing guidance and soft August sales. Another apparel retailer, Quicksilver Inc. (ZQK) is also struggling ahead of the bell after reporting weaker-than-expected fiscal third-quarter results late Thursday. Meanwhile, Gap (The), Inc. (GAP) is also expected to run into some selling after this clothing retailer reported disappointing August sales figures. Same-store sales declined 2.0% in the final month of the summer, well short of Wall Street’s call for a 1.6% advance.
In other news, the drama continues to build in the discount retail sector. Family Dollar (FDO) has rejected Dollar General’s (DG) increased buyout offer and said that it plans to stick with Dollar Tree’s (DLTR) initial bid. Dollar General has already made it public that it plans to take its proposal directly to shareholders. Wall Street is expected to react to the most recent development.
Elsewhere, it will be interesting to see how the investment community reacts to news that electric motor vehicles maker Tesla Motors (TSLA) has picked Nevada as the home of its $5 billion battery factory. Tech giant Apple Inc. (AAPL) is also expected to see heavy trading volume today. CEO Time Cook has announced that the company will take additional security measures to help avoid future hacking scandals such as the one that recently rocked Hollywood. Plus, investor hype continues to build as the company is expected to unveil the iPhone 6 and perhaps the iWatch sometime next week. BP PLC ADR (BP), which sold off sharply yesterday, appears poised to recover some of the recent loss, after announcing that it could face an additional $18 billion in fines stemming from the Gulf of Mexico oil spill four years ago. - Andre Costanza
Before The Bell - The bulls stepped it up nicely at the outset of the trading day on our shores yesterday, emboldened by a surprise interest-rate cut by the European Central Bank, a strong showing, in response, by Europe's bourses, a decent report on private-sector payrolls issued by Automatic Data Processing (ADP), and a narrowing of our international trade deficit in July.
Looked at individually, the ECB rate cut suggests that Europe's bankers are still on board with further monetary accommodation; the solid rise in the principal bourses on the Continent affirms that such policy adjustments are still greeted positively by the markets; the surprisingly tame deficit showing of a $40.5 billion shortfall is a constructive signal for third-quarter GDP growth; and the ADP data is yet one more sign that the U.S. economy is securely on the mend following a long and painful winter that had led to a 2.1% contraction in economic growth in the first quarter of this year.
Then, as if these developments weren't enough, the Institute for Supply Management reported a better-than-expected performance in non-manufacturing activity in August, shortly after the markets opened, with this key barometer of the services sector securing a survey reading of 59.6. That result was notably above the 57.5 figure widely expected and also a bit ahead of July's 58.7 reading. Note that an ISM score above 50.0 signals that this sector is expanding, which it now has done for the past 55 months.
So, early on it looked as if the stock market would continue on its merry way as traders awaited this morning's headline economic issuance for the month, the Labor Department's report on employment growth and the unemployment rate (see below). And, as if on cue the market did head nicely higher, initially, to the tune of another 83 points in the Dow Jones Industrial Average, which led to yet another all-time intraday record. The Standard & Poor's 500 Index followed suit, advancing further above the psychologically important 2,000 mark. The NASDAQ and the small- and mid-cap indexes joined the party, while there were many more stocks up than down as we headed into the midday hour.
However, the bulls could not keep things going their way all day, and by mid-afternoon, some caution had entered the collective minds of Wall Street's traders and some red arrows began to appear, including on the Dow, the S&P 500 Index, and the NASDAQ. The smaller indexes also headed into the loss column, and as we neared the final hour of the session, a notable selloff appeared to be in the offing. And, in fact, stocks did wilt somewhat further as that final trading hour evolved, although there was no rush to the exits at any point.
At its worst levels of the day, meantime, the Dow was off by just under 50 points, for a peak-to-trough swing of some 130 points. The S&P 500 Index was lower by eight points at its nadir, falling to 1,992. And the NASDAQ was down by some 20 points. However, these moderate losses were pared going into the close and by the time trading wound up the Dow was off just nine points and the NASDAQ was down 10 points. Reflecting this late weakness, declining stocks led winning issues by some two to one on the NYSE, but by a less-damaging eight-to-five ratio on the NASDAQ. Among the 10 major groups, most were lower, with notable weakness in the energy stocks, the healthcare issues, and the basic materials equities. It would appear that some plain old profit taking, fatigue after a long bullish run, and angst ahead of the all-important payroll report were behind the market's late, albeit modest, selloff yesterday afternoon.
Now as we look ahead to today's action, we see that stocks were generally in the loss column in Asia overnight, while they are heading down that same path so far this morning in Europe, weighed down earlier by concerns about the U.S. employment data and by worries about the still-dangerous situation in Ukraine, where fighting between Ukrainians and pro-Russian separatists
Meanwhile, in data released within the past few minutes, the U.S. Labor Department has reported that the nation added just 142,000 jobs in the latest month, while the August unemployment rate fell from 6.2% to 6.1%, which had been expected. As for the non-farm payroll survey, the latest employment increase was dramatically below the forecast gain of 225,000. Private-sector payrolls rose by just 134,000. All in all, this was a disquieting report from an economic growth standpoint, but the futures, off sharply going into the report, pared that shortfall somewhat initially, and now have edged into the plus column, as the pressure on the Federal Reserve to raise interest rates may now be less. - Harvey S. Katz