After The Close - The major U.S. equity indexes began the day on a solid note, and the upbeat mood was maintained throughout the entire trading session.
Somewhat counterintuitively, the enthusiasm was fueled by a weaker-than-expected jobs report. The U.S. added 75,000 new positions last month, less than half of what the consensus was looking for. Also, the estimated job gains for March and April were reduced by 75,000, combined. This was viewed as good news by traders, however, as slowing economic growth increases the possibility that the Fed will be prompted to cut interest rates. And, generally speaking, lower rates make stocks more attractive than fixed-income holdings, such as bonds or savings deposits.
At the closing bell, Dow Jones Industrial Average ended up 263 points, while the broader S&P 500 was up 30 points, with both indexes rising 1%. The tech-laden NASDAQ once again led the pack, rising 126 points or 1.7%.
Performance among the 10 major market sectors was also heavily weighted toward the positive side, with technology shares leading the pack with a 1.9% gain. Also turning in a good performance were healthcare, consumer cyclicals, and consumer noncyclicals, all of which advanced a full percentage point or more. Utilities were the only group to lose ground, ending down about half a percent.
Elsewhere, oil also put in a strong showing today, with light sweet crude jumping 2.8%, to a little over $54 a barrel. However, the commodity is still down about 12% over the past 30 days. Lastly, stocks held firmly to the green on the European bourses today. France’s CAC-40 led the charge with a gain of 1.6%, while the UK’s FTSE 100 was up a full percentage point and Germany’s DAX tacked on three-quarters of a percent. – Mario Ferro
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
Before The Bell - As America remembered the massive sacrifices made by so many on the beaches of Normandy 75 years ago yesterday, Wall Street began the latest session attempting to make it three up days in a row following massive equity gains on Tuesday and Wednesday. Indications that the Federal Reserve will cut interest rates sooner rather than later and hopes for a thawing in our difficult trade relations with China and Mexico were the main factors in the early week June surge by the bulls. In all, the Dow Jones Industrial Average ran ahead by a combined 720 points during the previous two sessions. Yesterday's early gains were more muted.
In fact, as we passed the first hour of trading the major averages had all dipped into the minus column. But that sojourn into the red would be short-lived, with the move back into the black being hesitant at first, but continuing, nonetheless, through the rest of the morning and into the first part of the afternoon. For the most part, the gains were modest, but steady. Things would not change much until we neared the final hour of the session when a buying spurt ensued, which sent the Dow quickly to session highs with a gain of better than 160 points, with more to come.
Once more, the better tone reflected optimism that the Federal Reserve would be cutting interest rates during the coming months--most likely by the September FOMC meeting, if not before. As to the rationale for the impending rate reductions, it is not the current economic conditions that are likely to spark the cuts, but rather the forecasts, which generally point to lesser business growth in the coming quarters. The consequences of the current trade disputes with China and Mexico have made some economic pundits fearful about the second half of this year.
All the while, economic surveys of note continue to come out. Specifically, yesterday morning, the Commerce Department reported that the U.S. trade deficit had eased from $51.9 billion in March to $50.8 billion in April, with exports and imports both declining. The narrowing of the deficit in the latest reporting month should help GDP growth in the current term, which we now believe will be little better than 2%, or well down from the revised 3.1% increase in GDP logged in the opening stanza. This consecutive-month improvement in trade, however, probably did little to affect trading, as the result was in line with expectations.
As to the market, prices rose further as we entered the home stretch, with all of the indexes rising up toward the day's highs, save for the small-cap Russell 2000, which continued to lag somewhat. The Dow would then push to a gain of some 260 points on hopes for progress in trade talks with Mexico, but give back some of those late gains into the close as worries seemingly reappeared about this morning's just-issued jobs report. In all, as the final bell sounded, the blue-chip composite was ahead by 181 points; the S&P 500 was better by 17 points; and the NASDAQ was in the green by 40 points. Only the Russell fell, but just slightly.
Then, after a generally higher close in Asia overnight and some early gains in Europe this morning, the financial markets received news that non-farm payrolls had increased by just 75,000 in May; expectations had been for a gain of 180,000. As to revisions, the increase in March was revised downward from 189,000 to 153,000, and in April, the rise originally estimated at 263,000, was pared to 224,000. In other jobs-related news, the labor-force participation rate came in at 62.8%, which was unchanged from May, and average hourly earnings increased by six cents and 3.1% for the past year. Finally, the unemployment rate stayed flat at 3.6%.
Regarding the market's reaction, the equity futures, which had been up before the issuance minutes ago, weakened somewhat after the report on concerns about the pace of economic growth in the months to come. Our sense is that this report, along with some other recent releases points to a much slower pace of GDP growth beginning in the current quarter and to perhaps two interest-rate reductions over the course of the year. That last item should mollify the bulls somewhat as the day unfolds. Stay tuned. - Harvey S. Katz, CFA