The futures market started in the red yesterday, continuing to fall after a weak day. Though the market began well into positive territory, the momentum faded fast as traders started to worry about the economy's health following a sharp decline in job openings in April (11.4 million, down from 14.9 million). Still, layoffs remained low (1.2 million annualized), and quits fell more than expected. However, comments from JPMorgan (JPM) CEO Jamie Dimon that the economy is headed for a "hurricane" further spooked the market. The indices dropped throughout the morning and fell to their nadir not long after the noon hour on the East Coast. However, the markets started to rebound after the Beige Book summation of economic conditions from the Federal Reserve showed that the economy continues to grow across all regions, albeit at a slow or modest pace. This allowed the indices to recover a bit into the close. Overall, the S&P 500 was down 31 points; the NASDAQ fell 97 points; and the Dow Jones Industrial Average was off 177 points.
The futures continued to trend unevenly throughout the evening and were around breakeven levels near midnight. This positive momentum continued through the night, and the futures contracts reached positive territory by morning, when the Automatic Data Processing (ADP) payroll report showed that 128,000 private-sector jobs were added in April—the slowest growth yet in the recovery from the coronavirus pandemic. Additionally, the report showed that companies with fewer than 50 employees reduced jobs by 91,000 in the month. Despite these setbacks, however, the futures held up quite well after the report, suggesting a strong start to the trading day.
Market breadth was rather negative yesterday, as decliners outpaced advancers by a 1.5-to-1.0 ratio. Energy issues were among the best performers. However, all other sectors finished in the red. The financial and healthcare equities were among the worst performers. Dow-30 component Salesforce, Inc. (CRM) posted a notable move higher, while Goldman Sachs (GS) was the worst equity on the index of bellwether companies.
In commodity news, oil prices rose yesterday, as traders bet that a strengthening economy in China following the end of lockdowns in Shanghai would help oil demand. Additionally, supply constraints related to the European Union's moves toward banning Russian oil suggest a weaker supply. Investors should note that OPEC was scheduled to meet today, with the hope that the confab of oil-producing nations would raise their output levels. Elsewhere, U.S. Treasury bond yields were a mixed bag, though many of the yields were lower after the day of trading. A few short-term yields rose, suggesting a flattening of the yield curve, which usually is a negative for financial companies' earnings. Still, traders are pricing in a 50-basis-point hike of the federal funds rate at the June 15th Federal open Market Committee (FOMC) meeting. The VIX Volatility Index, which measures the magnitude of price movements in the S&P 500, fell slightly despite a down market, suggesting that demand for options protection waned somewhat.
Looking ahead, several economic reports will be issued on Friday. These include May nonfarm payrolls, the labor force participation rate, and the ISM Nonmanufacturing (Services) Index. Additionally, Federal Reserve Vice Chair Lael Brainard will be giving remarkets. On the earnings front, the number of reports that will be released after the bell today or tomorrow is quite low, as the first-quarter earnings season is nearly closed.
– John E. Seibert III
At the time of this article’s writing, the author held one or more positions in the companies mentioned.
