Before The Bell
Another day, another strong opening for the stock market. All told, yesterday marked the third successive fast start for Wall Street this week, with the Dow Jones Industrial Average quickly roaring out to better than a 200-point advance. Behind this opening surge was growing optimism on the business front and some relief that Tuesday night's protest rallies across the country were much more peaceful than those of the prior night, when much property destruction had been suffered.
Then, there was further optimism on the economic front. To be sure, most economic reports continue to show major across-the-board weakness. However, the downturn seems to be passing its nadir. On point, yesterday morning featured a smaller decline in private sector payrolls in May than in April, and a lesser drop in such hiring than forecast. This report, from ADP (ADP), was just a prelude to tomorrow morning's non-farm payrolls survey from the Labor Department. A sizable decline in jobs and a ballooning jobless rate are the predictions there.
Meanwhile, in other news, two days after the Institute for Supply Management (ISM) reported another sharp drop in manufacturing sentiment, that same group released data showing another setback in non-manufacturing. Importantly, though, neither ISM survey was as bad in May as in April. Specifically, on Monday, the ISM noted that manufacturing had edged up to 43.1 in May from 41.5 in April. Both monthly results noted falling industrial activity, only less so in the more recent month, as orders, production, and employment improved.
Then, yesterday, the ISM non-manufacturing survey was issued. Here, too, there was sequential improvement, albeit one more monthly shrinkage in activity. Specifically, that survey came in at 45.4 for last month, a lesser decline than the 41.8 registered in April. However, both months saw activity fall well below the neutral 50.0 level. Here, as well, some sequential improvement was tallied in new orders, employment, and prices. Backlogs, though, weakened anew.
Not surprisingly, the stock market continued to advance through the morning and into the afternoon, with the Dow rising by 200 points, then 300 points, then 400 points, and finally 500 points in lockstep fashion as the day wound down, finally coming to a closing advance of 527 points. That 2.05% advance could not be matched by either the S&P 500 Index (up 42 points), or 1.36%, or the NASDAQ, higher by 74 points, or 0.78%. It was the third stealth advance by the blue chips so far this week.
Looking out to a new day and one session ahead of the all-important payroll report, we see that the U.S. equity futures are pointing to a moderately weaker start for the stock market. Finally, in breaking news, weekly jobless claims came in at 1.88 million. That continued a downtrend in place for weeks. Nevertheless, the latest total was above expectations and numbers for continuing jobless claims ominously went up for the most recent seven-day span.
– Harvey S. Katz, CFA
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
