After The Close - The first trading week of the month of October was a productive one for those long equities, as a series of decent reports on the U.S. economy had investors feeling a bit more confident. For the five-day stretch, the Dow Jones Industrial Average, the NASDAQ, and the S&P 500 Index finished 1.3%, 0.6%, and 1.4% higher, respectively.
As for today’s session, it may have been a case of buy on the rumor and sell on the news. That’s because Wednesday’s better-than-expected report on private-sector jobs creation from Automatic Data Processing (ADP) brought some buyers to the market who were betting today’s government report on non-farm payrolls would be better and give the equity market a boost. And, indeed, it did earlier today. Then, following the uptick, investors took some profits as the day unfolded. Too, the looming specter of the fast-approaching third-quarter earnings season, which, by the recent spate of warnings from Corporate America, may be a bit weaker than prior quarters could have prompted some selling. The earnings season kicks off after the closing bell on Tuesday with Alcoa’s (AA - Free Alcoa Stock Report) latest quarterly results due. Fellow Dow-30 component JPMorgan Chase (JPM - Free JPMorgan Chase Stock Report) is scheduled to report earnings next Friday.
From a sector perspective, it was a mixed showing. The biggest laggard was the technology sector, with shares of Apple (AAPL), Facebook (FB), Microsoft (MSFT - Free Microsoft Stock Report), Oracle (ORCL), and Zynga (ZNGA) all finishing in the red. Zynga shares fell after the social game maker lowered its 2012 outlook. Conversely, the consumer noncyclical stocks turned in a good showing.
As noted, the state of the U.S. economy was the big thing on the minds of investors this week—and for the most part it did not disappoint. The biggest shot in the arm came before the start of trading today when the Department of Labor released a solid report on employment and a much better-than-expected one on unemployment. On the jobs creation front, the nation added 114,000 new positions in September, pretty much in line with the consensus expectation. Also encouraging, were materially higher revisions to the number of hirings in July and August. This, along with a drop in the nation’s unemployment rate, from 8.1% in August to 7.8% in September, provided some hope that this ailing sector may be on the mend. The relatively good news on employment, along with decent data on both manufacturing and nonmanufacturing activity earlier this week, appeared to please investors. As the week wore on, investors showed an increased appetite for risk, reflected in today’s seven-basis-point jump in the yield on the benchmark 10-year Treasury note. Investors should note the U.S. bond market is closed on Monday in observance of Columbus Day.
Meanwhile, the economic picture on the Continent is not as encouraging. The lingering sovereign-debt woes and budget deficits for several nations in the struggling euro zone have push many of those nations into recessions. Just today, we learned that Germany’s factory orders fell 1.3% last month; industrial production fell by 3.2% in Spain; and the euro zone’s final revision to second-quarter GDP showed a contraction of 0.2% for the region. The economic problems, along with Spain’s unwillingness yet to accept the EU’s bailout loan and its austerity terms, have heightened the worries about the economic stability of the region. After a sluggish start to the week’s final session, the European bourses moved forcefully higher by the closing bell, likely on the better-than-expected economic news from the United States.
Looking ahead to next week, the economic news will be light, with the only notable reports being the trade gap (Thursday) and producer (wholesale) prices (Friday). We will also receive the Federal Reserve’s latest Beige Book summation of economic conditions on Wednesday. Meanwhile, as noted, earnings season kicks off with the aforementioned blue chips leading the way. We will also get results from Wells Fargo (WFC), Yum! Brands (YUM), Costco Wholesale (COST), Helen of Troy (HELE), Safeway (SWY), and Fastenal (FAST). - William G. Ferguson
At the time of this article's writing, the author did not have positions in any of the companies mentioned.
12:30 PM EDT - The U.S. stock market opened higher this morning, and has been able to hold most of its initial gains. Traders are likely feeling a bit better about the economy, with the release of the latest employment report. According to the Labor Department, there were 114,000 non-farm jobs added to the economy in the month of September. Moreover, the August jobs number was revised up to 142,000, suggesting that the situation may be stronger than had been previously thought. Importantly, the headline unemployment rate dipped to 7.8% in September, which was better than had been anticipated, and also lower than the 8% level, which may have some “psychological” significance. Other than this report, the economic news was light today.
At just past noon in New York, the Dow Jones Industrial Average was ahead 50 points (0.4%); the broader S&P 500 Index was up four points (0.3%); but the NASDAQ , which has been lagging today, was up slightly. The market’s breadth suggests some support for equities, as advancing issues are ahead of decliners by nearly 3 to 1 on the NYSE. Most of the market sectors are in positive territory, helped by the transportation, capital goods, and consumer non-cyclical stocks. Meanwhile, there is some weakness in the technology issues.
Technically, the S&P 500 Index has advanced for the a few consecutive sessions, as it looks to move into new 52-week high ground. Trading volumes, while not overwhelming, have started to pick up too, suggesting some broader participation.
Corporate news is starting to roll in up, but will really intensify next week, as Alcoa (AA – Free Alcoa Stock Report) kicks off the third-quarter earnings season. Today, Zynga (ZNGA) stock is sinking, after the Internet company reduced its outlook. In technology; shares of Datalink (DTLK) are also off sharply on lowered guidance. However, there was some good news. In the beverage area, Constellation Brands (STZ) stock is trading higher after that company released better-than-expected quarterly figures.
Widely traded issues moving higher include: VeriFone (PAY), Avon Products (AVP), and Groupon (GRPN). Stocks moving lower include: First Solar (FSLR), The Medicines Company (MDCO), and Facebook (FB).
In Europe, the major bourses were sluggish at the open, but are closing higher. Given that there were a few weak economic reports released in the region, the rebound probably reflects the news put out in the United States. The euro is up again and is now over $1.30. - Adam Rosner
At the time of this article's writing, the author had a position in Alcoa (AA).
Stocks to Watch from The Survey – Although all eyes are on today’s surprisingly good jobs report, there is some company-specific news that investors should be aware of. Most notable is the profit warning that online game developer Zynga (ZNGA) released after the market closed yesterday. As a result, ZNGA stock is plunging in pre-market trading. Also, the stock of Curtiss-Wright (CW) is indicating a notably lower opening today, after the machinery company cut its 2012 earnings outlook, due in part to a strike that temporarily stopped production at a Pennsylvania manufacturing facility. On the bright side, shares of Constellation Brands (STZ) are up slightly in the premarket, as investors appeared pleased with August-quarter financials from the producer and marketer of wines and spirits. – Matthew E. Spencer
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
Before The Bell - The stock market picked up nicely yesterday, following a succession of unimposing daily performances over the past number of sessions. The latest gains came on mildly encouraging news out of the troubled euro zone and some slightly better-than-expected reports on our shores.
Specifically, there now appears to be a greater commitment on the part of Europe's bankers to sustain the battered euro. At the same time, data over here were mildly supportive, as jobless claims rose less than expected in the latest week; factory orders fell less steeply than forecast; and there were reports of generally better sales at Costco (COST) and some other retail chains in the latest month. There also may have been some optimism ahead of September's employment report from the U.S. Labor Department, which was issued just within the past half hour (see below). A portion of that optimism may likewise have been an outgrowth of a stronger-than-forecast report on private-sector payrolls issued on Wednesday morning by Automatic Data Processing (ADP). That release showed that 162,000 private-sector jobs were added last month.
When all the numbers were in for the latest session, therefore, the Dow Jones Industrial Average was ahead by 81 points, bringing that index of 30 blue chip stocks up to within 25 points of 13,600. The Standard and Poor's 500 Index added 10 points on the day and the tech-heavy NASDAQ climbed 14 points. The small- and mid-cap stocks did somewhat better, and the advance-decline line was quite positive as investors awaited the aforementioned monthly report on non-farm payroll growth and the unemployment rate. Among the Dow issues, the day's big winner was Alcoa (AA – Free Alcoa Stock Report), with the shares of the long-depressed aluminum maker jumping better than 3% on rising hopes for the U.S. economy. Other materials issues, such as likewise battered U.S. Steel (X) also pressed nicely higher on economic hopes.
The anticipation on the labor front was understandable, as the employment area has been among the notable laggards for much of the past year or so, with non-farm payrolls generally coming in well below 100,000 a month since the spring and the jobless rate sticking distressingly above 8%. Now, in September, we find that the nation added 114,000 new positions. That number was fully in line with expectations. At the same time, the government reported that the unemployment rate fell sharply last month from 8.1% to 7.8%--a 44-month low. That was well below expectations of a flattish reading of 8.1%. This improvement aside, our sense continues to be that the nation needs to add some 200,000 payrolls a month--or more--to decisively and sustainably pare the jobless rate. We do not see that happening, unfortunately, through at least the first part of 2013. Even so, the drop in the unemployment rate to below 8% is a psychological boost, and could serve as a potential inducement for many to return to an active job search.
Finally, as for the market in the day ahead, the equity futures, which were up modestly just before the 8:30 AM (EDT) Labor Department issuance have rallied further on this report, setting up what we believe will be a solidly higher opening when trading resumes in about a half hour from now. The bull still seems in the driver's seat, and as we again press toward multi-year highs in the equity averages, we could see some additional short-term buying. – Harvey S. Katz
At the time of this article's writing, the author did not have positions in any of the companies mentioned.