After several days of weaker price action, the futures market started positively after yesterday’s closing bell. Still, prices fell in the morning, as Cleveland Regional Fed Chair Loretta Mester gave remarkets. She foresees interest rates rising above 4% by early next year and does not anticipate the Fed cutting the target rate next year. These comments caused the futures to retreat some, but still remained in the green. Then the ADP employment report (released at 8:15 A.M. EDT) showed businesses created 132,000 jobs, less than half of the total in July and below the consensus expectation. Markets increased on the weaker data, suggesting a positive start to the trading day.
Stock market action was slightly positive in the earliest portion of trading yesterday, with the three major indices trading in the green for a stretch, as the Case-Shiller Home Price index showed an increase in home prices of 18% in June, representing a slowdown from the month prior. This retreat in housing inflation was seen as a positive for the market. However, the markets declined once the job report was released. It showed that there were 11.2 million openings, which was higher than expected, and traders feared a stronger job market would cause the Fed to remain hawkish for longer than expected. Overall, the markets trended lower throughout the day. The S&P 500 Index fell 44 points; the NASDAQ Composite was off 135 points; and the Dow Jones Industrial Average declined 308 points.
Market breadth was negative yesterday, as declining issues outpaced advancers by a 3.8-to-1.0 ratio. All eleven market sectors were lower at the end of trading, but energy was among the weakest performers, hurt by a slide in related commodities. On the other hand, financials were among the best performers on a relative basis.
In commodity news, oil prices slid about 5%, to around $92 per barrel, as fears of a recession and oversupply of the energy source increased. Elsewhere, U.S. Treasury Bond yields rose slightly across the board, suggesting that traders fear future rate increases. Odds have shifted toward a 75-basis-point hike at the Federal Reserve’s meeting in late September. The CBOE Volatility Index (or VIX) was flat on the day, though it remains at an elevated level, suggesting that traders are pricing in higher volatility in the days ahead.
Several key economic reports will be released in the days ahead. These include initial jobless claims, productivity, and the ISM Manufacturing Index for August tomorrow. This Friday, nonfarm payrolls and the unemployment rate will be released. On the earnings front, several dozen companies are slated to report quarterly results in the days ahead. Overall, we think most eyes will be on the jobs reports and any inflation commentary that comes out over the coming days.
− John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
