Thursday saw the U.S. stocks see-saw throughout the session, shifting between optimism and pessimism on a variety of factors, but the bulls finally conquered, led by a late-day surge in technology shares, to have a small positive conclusion to the day.
Traders had plenty of news to consider: a mixed bag of same-store sales reports from the retail sector; a weekly drop in initial jobless claims; an upbeat report on private-sector payrolls from ADP; and not-so-subtle campaigns for higher interest rates from Fed members Thomas Hoenig and Dennis Lockhart. Also other factors were: technical resistance at the S&P 200-day moving average, the euro's weakness And, of course, there was an undercurrent of anxiety on Wall Street as investors mentally prepared for tomorrow's marquee economic report on May nonfarm payrolls. This backdrop lent itself to a turbulent day of trading.
On a broader level, the market is churning following a month-long “correction” that set the Dow, S&P 500 and the Nasdaq more than 10% off the recent rally highs. Stocks slumped during that period on worries that the European debt crisis and weak euro will hurt global growth.
Although economists don't expect the country to head into a double-dip recession, the recent economic news has been mixed, adding to investor concerns. That was evident in the morning's readings on jobs, factory activity and services. Investors are also wary of the correction becoming a bigger sell-off and ultimately a bear market -- a decline of more than 20% off the lows.
"The bears think nothing has changed, we continue to have problems and things are going to get worse, while the bulls say the correction was typical and we're doing fine," said Joe Clark, market analyst at Financial Enhancement Group.
He said that this push-pull is keeping the market choppy right now. "From a trading perspective, the S&P is probably in a range between 1,040 and 1,110, and if it can get past that 1,110 range, a lot of managers will start putting money to work."
The market has been vulnerable to swings because of worries about the economic fallout of the Gulf oil spill and the economic problems in Europe.
Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pa., said the gyrations are keeping some everyday investors from putting money into the market.
"They're seeing these whipsaw trades and for a lot of them it feels almost like a casino," he said.
On a broader level, the market is churning following a month-long "correction" that set the Dow, S&P 500 and the Nasdaq more than 10% off the recent rally highs. Stocks slumped during that period on worries that the European debt crisis and weak euro will hurt global growth.
Although economists don't expect the country to head into a double-dip recession, the recent economic news has been mixed, adding to investor concerns. That was evident in the morning's readings on jobs, factory activity and services.
Same-store Retail Sales
The nation's chain stores reported the ninth straight month of gains in May of same-store retail sales but were lackluster which earlier pressured the market.
Costco Wholesale Corp (COST) fell 1.7 percent to $57.93 after its sales missed estimates, while BJ's Wholesale Club Inc (BJ) lost 2.6 percent to $38.77.
However, retailers' recovering sales momentum slowed for a second straight month in May after the timing of the Memorial Day weekend shifted the holiday-related sales to June, and cool weather early in the month dampened demand for swimsuits and other seasonal merchandise.
Still, giving hope that underlying consumer demand continued to improve, retailers including Macy Inc. (M) and TJX Cos. (TJX) said sales picked up as the weather turned warmer toward the end of the month, helping them to close the month with better-than-expected results.
May was the ninth coolest and the seventh wettest in at least the past 18 years, according to Weather Trends International.
"We are still on a pretty healthy track for the retail industry," said Michael Niemira, chief economist of trade group International Council of Shopping Centers, in an interview.
"Things overall continued to be very good, it was just a little more uneven."
Overall, retailers' sales rose 2.6%, slightly above already reduced estimate of as much as a 2.5% gain projected by Niemira and slowed from the year-to-date trend of a 3.8% growth. He estimated Memorial Day likely hurt sales by an average of 1 percentage point even though some retailers have seen an impact of as much as 5 percentage points.
**The bottom line is that May sales exceeded Wall Street's lowered expectations, with analysts citing consumer spending that's choppy but still recovering.
Analysts said the true test of consumer health will be in June.
Services Sector and New Factory Orders
The services sector grew for a fifth straight month in May, according to the Institute for Supply Management, and the federal government reported that new orders received by U.S. factories rose in April.
The Commerce Department showed that factory orders increased 1.2% in April, short of the forecast for a rise of 1.7%. Orders grew 1.7% in March.
The Institute for Supply Management's services sector index for May held steady at 55.4, missing forecasts for a rise to 55.6. However, any reading over 50 shows expansion in the sector.
Reports on the labor market were released before the market open that showed some improvement. However, results were shy of economists' expectations.
The number of Americans filing new claims for unemployment fell to 453,000 last week from a revised 463,000 the previous week.
Economists expected 455,000 new claims. But continuing claims, a measure of those receiving benefits for a week or more, rose to 4,666,000 versus forecasts for a decline to 4,600,000 from 4,635,000 the previous week.
Payroll services firm ADP said private-sector employers added 55,000 jobs to their payrolls in May after adding 65,000 in April, short of forecasts for a gain of 60,000.
On Wednesday, outplacement firm Challenger, Gray & Christmas said planned job cuts rose 1.3% in May, although the pace of downsizing continued to slow.
Friday's jobs report is the biggest of the week. The government is expected to report that employers added 500,000 to their payrolls last month, due partly to the impact of the Census jobs. Employers added 290,000 in the previous month. The unemployment rate, generated by a separate survey, is expected to have fallen to 9.8% from 9.9% in the previous month.
Bernanke, Hoenig and Lockhart
In remarks prepared for a conference Thursday in Detroit, Federal Reserve Chairman Ben Bernanke said unemployment remains an important concern.
Policymakers have largely succeeded in stabilizing the U.S. financial system and economy over the past two years but the scarcity of jobs is troubling, Federal Reserve Chairman Ben Bernanke said on Thursday.
"One particularly difficult issue is the continued high rate of unemployment," Bernanke said in prepared remarks for delivery at a meeting in Detroit to discuss the financing needs of Michigan's small businesses.
Bernanke told the meeting, held at the Chicago Fed Bank's Detroit branch, that bank lending to small businesses was declining.
Elsewhere, the Fed's most vocal hawk, Kansas City Federal Reserve Bank President Thomas Hoenig, called on the central bank to raise rates to 1% by the end of the summer and drop its pledge to keep rates exceptionally low for an extended period.
Photo: Kansas City Federal Reserve President Thomas Hoenig speaks in Atlanta, January 5, 2010.
Hoenig's talk followed Atlanta Federal Reserve Bank President Dennis Lockhart, who declared "the time is approaching" for higher rates in a speech earlier Thursday.
The U.S. economy is almost strong enough to allow the Federal Reserve to begin thinking about raising interest rates, Atlanta Fed President Dennis Lockhart said on Thursday.
While he noted unemployment would likely remain elevated for some time, Lockhart said the U.S. central bank should not wait too long before beginning to tighten the reins.
"The time is approaching when it will be appropriate to consider recalibrating interest rate policy. I do not believe that time has yet arrived," Lockhart told.
"As the economy continues to improve and financial markets find firmer ground, extraordinarily low policy rates will not be needed to promote recovery and will become inconsistent with maintaining price stability."
Photo: CEO of the Federal Reserve Bank in Atlanta Dennis Lockhart
The Energy Sector
The broad stock market advanced Wednesday as energy shares bounced back from the recent drubbing sparked by the BP (BP) oil spill in the Gulf.
But energy stocks were mixed Thursday as investors mulled BP's latest efforts to plug the massive oil leak, more than 6 weeks after its Deepwater Horizon rig exploded. Two ratings agencies downgraded BP, citing the financial impact and hit to its reputation as a result of the explosion.
Nonetheless, shares of both BP and Transocean (RIG), the owner of the rig, gained as BP said its latest effort, involving the use of underwater robots, was having some success.
BP was trying to put a lid on the Gulf oil gusher.
Live video showed that an inverted funnel-like cap slightly wider than a severed pipe was being maneuvered into place using robots Thursday night over the oil spewing from a busted well.
However, the gushing oil made it very difficult to tell if the cap was fitting well. BP spokesman Toby Odone said he had no immediate information on whether the cap was successfully attached.
A rubber seal on the inside will attempt to keep oil from escaping, though engineers acknowledge some crude will still come out.
BP sliced off the main pipe on the leaking oil well with giant shears in the latest bid to curtail the worst oil spill in U.S. history, but the cut was jagged, and a looser fitting cap will be needed.
Results for Major Market Indexes
The Dow Jones Industrial Average (DJIA – 10,255.28) finished with a small gain of 5.74 points, or 0.06%. The S&P 500 Index (SPX – 1,102.83) also had a gain on the day, of 4.45 points, or 0.41%, whilst the Nasdaq Composite (COMP – 2,303.03) fared even better, gaining 21.96 points, or 0.96%.
The Russell 2000 index of smaller companies rose 6.85, or 1 percent, to 667.37.
Technology shares, among the biggest beneficiaries of an economic recovery, led the rally, with the Philadelphia semiconductor index .SOXX up 1.2 percent.
Microsoft Corp (MSFT) rose 1.5 percent to $26.86 after Chief Executive Steve Ballmer said the company will continue to prosper even as the transition from PCs to other devices poses a "potential tumult."
"This is the high beta stuff, so when the market has a decent tone to it, you'll see technology outperform on the upside," said Bill Strazullo, chief market strategist at Bell Curve Trading in Boston, referring to a stock's likelihood to swing with the market.
"When we have a day where the data is good and people are more optimistic about the idea that the recovery's intact and businesses are going to spend on technology, that is the theme that dominates."
The weak euro, a spike in crude oil prices and a rise in Treasury prices were all in play during the session. Financial shares were mostly lower, while Nasdaq components Microsoft (MSFT), Yahoo (YHOO) and Dell (DELL) helped lift that index.
About two stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 5 billion shares compared with 5.1 billion Wednesday.
Bond prices slipped, sending interest rates higher. The yield on the benchmark 10-year Treasury note rose to 3.37 percent from 3.35 percent late Wednesday.
Stocks briefly shed their gains after the euro dipped below $1.22, but held above the four-year low of $1.2111 reached June 1.
"The situation in Europe is not fully played out, and any significant bad news around PIIGS countries [Portugal, Italy, Ireland, Greece and Spain] could put a damper on otherwise favorable news here in the United States," said Bob Enck, chief executive of Equinox Fund Management, referring to five debt-riddled nations in the euro zone.
The dollar fell 0.1% against the yen.
Markets in Europe rallied. Britain's FTSE 100 gained 1.2%, Germany's DAX added 1.2% and France's CAC 40 advanced 1.6%.
Asian markets ended higher. Japan's Nikkei rallied 3.2% and Hong Kong's Hang Seng rose 1.6%.
Notes of Interest….
• The Dow Jones Industrial Average (DJIA) finished above its 10-day moving average for a second consecutive daily close being the first time since late April.
• The S&P 500 Index (SPX) is still holding its 10-day moving average but, more importantly has recaptured the major psychological 1,100 level.
• The Nasdaq Composite (COMP), the tech-heavy index, finished on the positive side of the 2,300 mark for the first time since May 18. The COMP also settled above its 20-day moving average, which hadn't been toppled on a daily closing basis since May 3.
• The bullish mood was kicked off by the government's latest report on petroleum stockpiles. The Energy Information Administration (EIA), in a holiday-delayed report, noted today that crude supplies unexpectedly fell by 1.9 million barrels during the past week. Traders also considered the possibility that a moratorium on deepwater drilling would be extended to shallow water, as well. Thanks to these looming supply concerns, crude oil for July delivery added $1.75, or 2.4%, to settle at $74.61 per barrel.
• Gold for August delivery was down $12.60, or 1%, to finish squarely at $1,210 per ounce. Traders took their cues from the currencies market, as the U.S. dollar gained ground against the euro during today's session. As a result, gold lost some of its allure as an alternative investment -- and selling intensified when the precious metal tumbled through support in the $1,210 neighborhood on an intraday basis.
Today was a little quieter on Wall Street, the CBOE Volatility Index (VIX), or the markets' so-called "fear gauge," was still in vogue though, earlier in the session.
The volatility was much less but capitalizing on this was still acceptable, with starting price being $29.12 and reaching a high of $31.20 around 12.20pm, to finish on $29.46.
Company Earnings Reports
There has been some positive notes today particularly from the earnings arena. Several companies have presented earnings reports that exceeded the analysts’ expectations. These are:-
• Cyberonics Enterprises (CYBX)
• Hovnanian Enterprises (HOV)
• America’s Car-Mart (CRMT)
• Joy Global Inc (JOYG)
Suntech Power Holdings Co Ltd (STP) presented a negative quarterly report which surprised analysts.
Company News and Movements:
Volume was light ahead of Friday's nonfarm payrolls report, which is expected to show the economy added 513,000 jobs in May.
Most of the gains are expected to be due to temporary Census hiring, which has resulted in forecasts ranging from 175,00 to 750,000 for tomorrow's figure, according to a Reuters poll. "It's just too big of a wild card," Strazullo said.
"You've got a very important number coming out tomorrow with a very large range of possible outcomes and people just don't want to go into that with any unnecessary exposure."
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