Unemployment Figures Unravel Market
We all knew that layoffs have accelerated, but today's jobless claims data seemed to rekindle economic worries that had been largely absent over the past week. Both first time jobless claims and announced layoffs came in much greater than expected and served to remind investors that we are not going to recover as quickly as recent trading has implied.
Before we delve into the actual jobless numbers, let me first say that I believe the market knew the weak numbers were coming and that the institutions simply stepped back today. After all, the market had become overbought in the short run and the big players probably still have more cash to put to work.
Let's also not forget that stocks have been rising lately on wide expectations of further interest rate cuts. The weak economic data that came in today increases the odds of further rate cuts, which in the short-run, should be net positive for stocks.
The market's reaction to the weak numbers was also suspect. We saw the predictable free fall in the morning, but also saw big buyers come into stocks almost on an hourly basis after the initial plunge.
We also saw some real buying interest come into the market within the last hour of trade, which is contradictory if the market truly believes that the weak jobs data is going to hurt stocks in the short run. This is because the most important jobs data of the week comes out Friday with the payrolls number. If the market believes that the lack of jobs growth will hinder the near term health of the market, buyers would be naturally stepping away from stocks right now, since Friday's payrolls number is expected to disappoint.
Friday's non-farm payrolls number for April is expected to show the economy added 27,000 jobs after March added 86,000 jobs. However, many analysts think that there is a good chance the number might surprise to the downside, due to the recent jobs climate. In addition, we get average hourly earnings, expected to have moved up 0.3%, and the unemployment rate, which is expected to come in at 4.4%.
Now, back to the actual numbers. The Labor Department said today that first time jobless-claims rose 9,000 to 421,000, the highest jobless figure in more than five years. The four-week average rose to 404,500, which is the highest since October of 1992. Of particular note here is that October of 1992 came 15 months after the recession of 1990, and by this time, the market had already recovered for the most part. This goes to show that the jobless- claims number is a lagging indicator, and that yes, it will get worse before it gets better.
We also got word that the weakness in the manufacturing sector has indeed spread to the service sector. The NAPM service index came in at 47.1% versus expectations of 50.6% and down from March's 50.3%. The services index fell below the 50%-level for the first time since this data has been tracked. This weakness also bodes well for further interest rate cuts come May 15th, which is the next time the FOMC meets.
The NASDAQ (COMPX) performed a slow meltdown for most of the session, after initially opening down 37-points. The tech heavy index closed the day down 74.40, or 3.35%, to 2146.20. Volume was moderately heavy, with 2 billion shares changing hands. On the bright side, new highs beat out new lows 136 to 16.
The DOW (INDU) tried valiantly to recapture losses in the last hour, but the old-economy still ended down 80.03, to 10796.65. However, this wasn't such a bad showing, considering at its low the DOW was off 153. NYSE volume came in at 1.3 billion and new highs beat new lows 82 to 15.
Treasurys advanced on the weakness in equities. The 10-year bond added 21/32 to yield 5.21% and the 30-year note rose 31/32 to yield 5.63%. The weak economic data gave bond investors reason to believe that more rate cuts are on the way, thus the renewed interest in government debt.
Stocks and Sectors on the Move
You guessed it. The sectors that sold off the most today were the exact same ones that booked the most gains over the past four sessions.
The computer hardware stocks were reigned in today, after some issues had just found their stride to the upside. The main culprit was a UBS Warburg downgrade of Dell (NASDAQ:DELL) to a "buy" from a "strong buy" based on pricing issues. UBS believes that aggressive price wars between Dell and Compaq (NYSE:CPQ) will result in decreased margins. They also feel that this may leave Dell open for further disappointment, given its rich P/E of 36. Dell closed down $1.80 to $24.93, CPQ slipped by $0.55 to $17.40 and Apple (NASDAQ:AAPL) soured by $1.63 to $24.96.
Riding the elevator down with the hardware issues were the semiconductor stocks. The SOX.X slipped 23.58 to 647.07 after again encountering resistance at around the 700-level. Intel (NASDAQ:INTC), the bellwether chip stock, fell $1.54 to $30.40, Advanced Micro Devices (NYSE:AMD) lost $0.34 to $32.61 and Xilinx (NASDAQ:XLNX) gave up $2.46 to $45.81.
In other chip stock news, Vitesse Semiconductor (NASDAQ:VTSS) slipped $3.47 to $34.30 after reporting that it will reduce its work force by up to 12%.
Turning to stocks that posted gains in today's session, EchoStar Communications (NASDAQ:DISH) blasted off by $4.60, or 14.33% to close at $36.93. The satellite T.V. provider reported a loss of $0.16/share, narrower than the $0.24 loss expected by analysts and also said that it picked up 460,000 new customers in the quarter, much more than expected. Echostar's Dish network is the second largest in the U.S. behind Hughes Electronics' Direct T.V. Today's surge in Echostar's stock put DISH shares above their 200-dma for the first time since 10/4/00 and also served to boost the stock above its four-month cup formation.
Other sectors that posted small gains on the day were the banks and the insurers. Citigroup (NYSE:C) added $0.40, to close at $51.00, Bank One moved higher by $0.15 to close at $38.55 and Chubb (NYSE:CB) advanced by $0.26 to close at $67.71.
Looking Forward, Always Forward
We could be in for a wild ride tomorrow morning following the release of the April payrolls number. This number has added importance since it is the last significant reading the Fed gets before its May 15th meeting. Therefore, use your best judgment when buying stocks on a gap up in the morning or conversely selling stocks on a big gap down because the big boys will want to take the market back towards any gap opening.
Sometimes it's hard to see the forest through the trees, so let's take a step back and see what kind of lie we currently have. Looking at the S&P 500, we can see that the market hammered its tee-shot from 1100 all the way up to the 1250-level. From 1250, the market sliced a seven-iron into a bunker back at the 1200- level, but recovered nicely with a well placed eight-iron shot up to the 1250-level (I know, I have golf on the brain).
For weeks now, traders have been talking of the magical 1275- resistance level on the S&P as the quintessential hole that the market has been shooting for since we so called "bottomed" on 4/4/01. They argue that if we can get over this hurdle, that it's clear sailing all the way up to 1350.
Whether the jobs report stands in the way of a perfect chip shot over the 1275 level remains to be seen. Although, I think market sentiment has changed enough for the better as to provide limited downside. This is again due to the buy-the-dips mentality that is slowly creeping back into investors' thoughts and actions.
Besides markedly improved sentiment, I think investors are now willing to take more calculated risks in equities now that money market yields have dropped to the 4-5% range and are due to go lower.
Enjoy Your Weekend