US Stocks Higher but Rally Deflates; Crude Oil Slips
New York (Sept 2) An early rally deflated by mid-morning Wednesday as investors digested a mix of economic data from factory orders to private payrolls.
The S&P 500 was up 0.6%, the Dow Jones Industrial Average added 0.85%, and the Nasdaq gained 0.79%.
The Volatility Index (VIX.X) , commonly referred to as the "fear index," fell 4% to 30.13. Volatility has eased after a rollercoaster five days last week.
Factory orders rose 0.4% in July, a second month of gains, though they were far weaker than expected growth of 0.9%. June factory orders were revised up to 2.2% from 1.8%.
Private payrolls in the U.S. added far fewer jobs than expected in August, according to the latest ADP report. The private sector added 190,000 jobs over the month, up from 185,000 in June but below estimates of 210,000. The report comes ahead of the official U.S. jobs report on Friday.
U.S. productivity in the second quarter was revised up to a 3.3% annual pace, more than double original estimates of 1.3%. The revision was driven by a correction to second-quarter GDP that showed growth much stronger over the quarter than originally estimated. The increase was its biggest in nearly two years. Hourly worker wages was unchanged at 1.8%.
"With the markets so intensely focused on both the timing of a [Federal Reserve] interest rate hike and the possibility of slowing global growth, each data release is receiving heightened scrutiny," Bill Stone, chief investment strategist at PNC Asset Management Group, wrote in a note. "We are seeing an increased correlation between volatility and data releases, regardless of the necessity to assess the full picture, as is the Fed's position."
Fed members will meet on Sept. 16-17. The market-implied probability of a rate hike has fallen below 50% even as economic data continues to support a U.S. recovery.
Crude oil prices were on watch after President Barack Obama received support from the 34th member of the Senate to back an Iranian nuclear deal. Sen. Barbara Mikulski's vote means the deal will not be killed in Congress. A deal would mean the easing of Iranian sanctions, which means even more oil on global markets, in exchange for comprehensive nuclear inspections.
West Texas Intermediate was down 0.6% to $45.13 a barrel. Crude had dropped more than 7% on Tuesday, ending a three-day rally which was its best in 25 years.
Markets suffered big losses on Tuesday as 499 stocks in the S&P 500 closed negative, the second highest reading since 1996. Those losses were only topped by a selloff in August 2011 which saw all 500 stocks in the red, according to MKM Partners.
"All of this suggests that while a bounce could materialize today, it's far too early to look for 'the bottom' in our view," said Jonathan Krinsky, chief market technician at MKM Partners.
Chinese equities endured a wild ride on Wednesday before stabilizing into the close. China's Shanghai Composite opened more than 4% lower before turning positive by the middle of the session then ending 0.2% lower. Nine more Chinese brokerages have committed to invest an additional 30 billion yuan in the share market in order to stabilize it after heavy falls, according to the China Securities Journal. Markets will be closed on Thursday and Friday to commemorate the 70th anniversary of the end of World War II.
International Monetary Fund head Christine Lagarde remains worried of potential contagion as China's economic woes bleed out into the rest of the region and rocks global markets.
"What has been demonstrated in the last few weeks is how much Asia is at the core of the global economy, and how much disruption in one market in Asia can actually spill over to the rest of the world," she told a conference in Indonesia. Lagarde said that prudent fiscal policy was needed as China and Japan struggles with a slowdown, oil prices crash and the U.S. prepares to hike rates.
Morgan Stanley analysts believe that the worst of the stock market slump is over, issuing a "full house" alert to buy on international stock markets for the first time in more than six years. European equity strategist Graham Secker argued that the recent selloff has been driven by emotion rather than fundamentals and that now is the time to buy as selling hits its peak.
The Federal Reserve's Beige Book will be released Wednesday afternoon and traders will be eager to parse the Fed's anecdotal read on the state of the U.S. economy. Investors have shown nerves recently that the Fed will raise rates in September given the strength of the U.S. economy even as the global economy falters.
Source: TheStreet
