Mid-Day Recap: Stocks Flat After Data

Stocks have gone sideways after Tuesday’s major equity sell-off.  Markets hardly moved when a private jobs report failed to match expectations, while remaining data had only temporary impacts. The culprit for recent weakness in equities is a general sense that shares rose too much from early March to August, which saw the S&P 500 surge by 52%.

At 1:30pm, the S&P is trading 0.01% lower at 997, the Dow has risen 0.02% to 9,312, while the Nasdaq is up 0.11% to 1,971.

Yesterday, the S&P fell 2.2%, sparking concern in the world’s second largest economy, Japan, in today’s early session. The Nikkei slid 2.4%, in contrast to the China’s Shanghai Index, which has quietly crept up for two straight days.

As markets eagerly await Friday’s official employment data, a jobs report this morning had the potential to put markets on the upswing, but instead it failed to meet forecasts. 

The ADP private employment report found that 298,000 private jobs were lost in August, suggesting that the labor market improved compared to July, when 360k jobs vanished from the economy. Markets were disappointed, however, as economist had called for a reading of -245k losses.

“From an accounting perspective this ADP report mathematically implies a nonfarm payrolls number of -278K, larger than the market expectations for a print of -225K,” said Ian Pollick from TD Securities. “However, the ADP has had a checkered history and we are only revising our payrolls forecast down from -175K to -200K as a consequence.”

Pre-market trading also saw the release of the revised Productivity & Costs report. The second-quarter report said labor productivity increased at an annual rate of 6.6%, better than the +6.4% reported several weeks ago. 

“This was the largest productivity increase since the third quarter of 2003, and reflects declines of 1.5%in output and 7.6% in hours worked,” said the Bureau of Labor Statistics. “From the second quarter of 2008 to the second quarter of 2009, output fell 5.5% while hours fell 7.2%, yielding an increase in productivity of 1.9%.

The productivity gains ― measured per labor hour ― come at the high costs of businesses slashing payrolls. And despite rising productivity, wages have been stagnant in recent months.

The last bit of data published this morning was the Factory Orders release, which, like the ADP survey, showed improvement compared to the prior month but failed to meet forecasts.

Orders increased by 1.3% in July, against expectations of a 2% advance. Markets were also disappointed by the lopsided nature of the results: aircraft orders from Boeing were largely responsible for the gain; when transportation is excluded, factory orders actually fell 0.7%.

The economic news continues into the afternoon today, as the Federal Reserve will publish minutes from its last meeting at 2pm. Market reaction is likely to be small, but analysts expect central bank officials to be sounding more upbeat as the economy enters recovery mode.