Last Update: 02-May-12 08:33 ET
Weak ADP Number Adds to the Anxiety
The opening snooze yesterday turned out to be only a short nap. The market managed a surprising rally in response to a slightly stronger than expected overrated manufacturing survey, and then lost ground steadily in the afternoon. This morning, S&P futures indicate a lower open of perhaps 8 points. That would wipe out yesterday's gain.
The action yesterday was considerably different than what had been a common pattern the past few months of the market rallying steadily through the day after early dips. It is a stretch to draw conclusions from one day, but yesterday's action suggests more underlying nervousness than optimism, in our opinion. There was a knee-jerk reaction to the April ISM survey, then doubt set in.
Most of the doubts revolve around the spreading European recession. The impact of European weakness on the US economy has been overplayed, but there is no denying the concern. On top of that, there is increasing concern about the US economic outlook.
The ADP report this morning showed an increase of only 119,000 in April payrolls. That private company data, in conjunction with the recent uptick in weekly unemployment claims, raises the likelihood of a second straight month of a disappointing gain in the government payroll report. The April payroll data are due Friday, and talk will now be of a gain of just 100,000 to 150,000. If that occurs, it would mark the second straight month of an increase of less than 150,000 after three straight gains exceeding 220,000.
The market has hung tough the past few weeks, and perhaps we are overly-sensitive to the seasonal weakness that has occurred in the stock market the past two years. Nevertheless, with earnings season winding down, and concerns about the European and US economic outlooks increasing, we feel that rising anxiety will create additional volatility in the stock market over the near term, with downside risks. Longer-term, we remain bullish based on the strong relative value of stocks, but defensive strategies for the short-term are worth considering.
Founder and Chairman, Briefing.com
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