After the Close
Stocks logged another constructive session today, as traders digested some key economic news. At the close of trading, the Dow Jones Industrial Average was up 60 points; the broader S&P 500 Index was ahead nine points; and the NASDAQ was higher by 59 points. Market breadth was favorable with winners nicely ahead of losers on the NYSE. Most equity groups gained some ground, with notable leadership in the technology and healthcare names. Meanwhile, the energy issues retreated on concerns about commodity prices. Of note, the price of crude oil pulled back to just under $48-a-barrel in New York, as the U.S. dollar slipped against most international currencies.
Meanwhile, traders were likely pondering the state of the employment situation today. According to the latest non-farm payroll report, there were 138,000 jobs added to the economy in the month of May. This figure was quite a bit lower than had been widely expected, and was also weaker than the April showing. Meanwhile, the headline unemployment rate dipped to 4.3%, from 4.4%, where many analysts had though it would remain unchanged. For the most part, traders seemed to look past this month’s soft jobs number. From here, it remains to be seen if the Federal Reserve will choose to lift interest rate at its meeting in a couple of weeks. Most traders on Wall Street are still likely expecting that some action will be taken. Elsewhere, the nation’s trade balance was also reported today. The trade deficit widened to $47.6 billion in April, where analysts had been looking for a better result.
Finally, a number of widely-followed companies weighed in with their financial results over the past 24 hours. Of note, shares of Broadcom Ltd. (AVGO) moved higher, after the technology giant delivered a solid report. Also, shares of lululemon Athletica (LULU) had a good day, as traders were impressed with the apparel retailer’s progress. In contrast, shares of RH (RH) suffered a steep drop, on concerns about the home furnishing company’s outlook.
Technically, equities continue to march higher. The S&P 500 Index is now nicely above the 2,400 level, which had been a point of resistance for some time. However, it remains to be seen if the bulls can keep their buying campaign going. No doubt, traders will likely be keeping an eye on the Fed, watching the corporate environment, and following the latest political developments in Washington. – Adam Rosner
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Mid-Day Update - 12:00 PM EDT
Stocks are trading moderately higher on the first Friday in June, in spite of some disappointing economic news. Right around the noon hour on the East Coast, the Dow Jones Industrial Average is up 65 points; the NASDAQ is ahead 46 points; and the S&P 500 is six points to the good. Market breadth is strongly positive, with the number of issues rising ahead of those falling by three to two on the Big Board and a more impressive two to one margin on the NASDAQ. In an indication of the market’s recent strength, the number of stocks hitting new highs is more than ten times greater than those on the new-low list.
The big news this morning was an uninspiring May jobs report issued by the Labor Department. Job creation came in only about 75% of what had been expected, and the figures from the prior two months were revised lower. On the bright side, the unemployment rate fell to 4.3%, the lowest reading in 16 years. That seemed to suggest that the job market remains healthy overall.
For its part, Wall Street doesn’t seem fazed by the weakness in the May employment report, and least not with respect to stocks. The reaction in the bond market was more apparent, with the yield on the benchmark 10-year Treasury continuing its recent slide, dropping to 2.16%. That is down from 2.25% at the beginning of the week and around 2.50% at the start of 2017. The implication is that bond investors envision less economic expansion than before. That is a potential warning sign for the stock market, where valuations remain high.
Falling oil prices are another possible hitch. The benchmark U.S. grade is off $0.82 a barrel today, to near $47.50. Crude oil inventories remain high, despite a larger-than-expected drop reported yesterday by the Energy Department. Investors appear to be concerned that increasingly productive domestic wells will outstrip ongoing reductions in pumping volume on the part of OPEC, Russia, and other countries. That prospect was underscored by recent reports of high levels of oil exports from the United States.
Heading into the afternoon session, sentiment looks to be taking a glass-half-full approach. Despite the weak May employment report, there are few worries that the positive trends in the labor market are seriously fading. – Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
Before the Bell
After fashioning back-to-back undistinguished performances to begin the holiday-shortened trading week on Wall Street, the bulls sought to regain the upper hand yesterday morning. And they did so easily. To wit, after a halting start, which saw the key indexes marching in place for the first hour, or so, the bulls took over the reins and held on to the high ground to secure a wire-to-wire win, for the most part.
This rebound from the aforementioned pedestrian showing the first two days of this week, was helped along by generally supportive economic data. Specifically, an hour before trading began, ADP (ADP) reported that private-sectors payrolls had risen by 253,000 in May--well above the 185,000 forecast. That result is often seen as a predictor of the just-issued Labor Department employment release (see below). Also, while new jobless claims came in above consensus, the 248,000 total was still low by recent and historical standards. In addition, the Institute for Supply Management affirmed that its manufacturing index had increased nominally in May.
The latter report, which showed an increase from 54.8 to 54.9 last month, was supportive, as the result was well above the 50.0 dividing line between an expanding and a contracting industrial sector. That result, moreover, was consistent with most of the other reports out recently, which, in total, have shown enough to indicate that GDP growth will strengthen notably this quarter, coming in at roughly 3%. That should encourage the Federal Reserve to raise interest rates when it meets during the middle of this month. So stocks, buoyed by this constructive data, rose briskly as the session progressed.
Indeed, as we headed into the lunch hour, the Dow Jones Industrial Average had managed to post a low triple-digit point gain, with that blue-chip composite up by some 125 points. Slightly better midday increases were tabulated by the S&P 500 Index and the NASDAQ, with all 10 of the major equity sectors rising in price as the afternoon got more fully under way. Also, gaining stocks held about a four-to-one lead on declining issues. The health care group and the consumer staples sectors led the way higher as the day move along.
The bulls then continued to hold the upper hand as we headed into the home stretch, as the decent May showing by the Dow, the S&P 500, and the NASDAQ persisted, at least for one day. Of note, the CBOE Volatility Index, or the VIX, which is also known as the fear gauge, broke below 10 on a half dozen occasions last month, falling to levels not seen in about two decades. The absence of fear in the market, which the VIX now shows, can be a bearish indicator. But not for the time being at least, if one day's action this month is a guide.
The bullish action continued into the home stretch, as concerns about the jobs data did not surface as the closing bell approached. As a result, the indexes concluded the trading day, with a modest late surge, bringing them up to their respective highs for the session. In all, the Dow ended matters ahead by 136 points; the S&P 500 Index was better by 18 points; and the NASDAQ led the way among the large-caps gaining 48 points. Proportionately greater gains, meantime, were logged by the S&P Mid-Cap 400 and the small-cap Russell 2000, with the latter composite soaring nearly 2%. It seems as if Wall Street was banking on a big jobs number.
However, the Labor Department did not come through, at least on the job creation front. On point, the nation added just 138,000 jobs last month. Expectations had been for an increase of 185,000 positions, with some forecasting an even higher number. Still, the jobless rate ticked down to 4.3% in May. Breaking the report down, we see that average hours worked were unchanged in May; while the labor-force participation rate also disappointed, declining by 0.2% to 62.7%. As to revisions, the government posted changes for March and April. Specifically, job growth went from 79,000 to 50,000 in March and from 211,000 to 174,000 in April. In all, it was a weaker report than forecast.
As to the market, following the strong breakout yesterday, our sense is that stocks will open modestly higher this morning, although some of the earlier gains were pared following the poor job growth in May. – Harvey S. Katz
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
