Closing Market Summary: Averages End Flat, Recovering Losses Ahead of Jobs ReportThe stock market ended the Thursday affair on a flat note as the S&P 500 (UNCH) clawed back the bulk of today's loss. Trading conditions continued to be on the lighter side as market participants wind down recent vacation schedules and look ahead to tomorrow's Employment Situation Report for August.
Equity indices sputtered at the start of the session as a string of weaker-than-expected economic data weighed on the broader market. The ISM Manufacturing Index for August indicated a contraction, falling to 49.4 (consensus 52.2) from July's reading of 52.6. Additionally, negative revisions to second quarter Productivity (-0.6%; from -0.5%) and Unit Labor Costs (+4.3%; from: +2.0%) weighed on the broader market's outlook for corporate earnings.
The disappointing economic data led to a negative revision of the Atlanta Fed's GDPNow forecast for the third quarter. The model now estimates that GDP growth for the third quarter will come in at 3.2%, declining from the August 29 estimate of 3.5%.
The major averages notched session lows shortly before midday as an extended downturn in crude oil weighed on the broader market. The energy component fell from the $44.35/bbl price level as investors eyed growth concerns associated with a pullback in manufacturing activity. The energy component ended its session lower by 3.4% ($43.17/bbl; -$1.54), extending its week-to-date loss to 9.4%.
The broader market recovered losses in the second half as a rebound in the heavily-weighted consumer discretionary (+0.2%) and technology (+0.4%) sectors boosted the broader market. The S&P 500 (UNCH) jostled near the 2170 price level, settling with six sectors in the green. The health care (-0.2%), energy (-0.3%), financial (-0.4%), and utilities (-0.4%) sectors rounded out the board while consumer discretionary (+0.2%), telecom services (+0.3%), and technology (+0.4%) outperformed.
The economically-sensitive financial sector (-0.4%) displayed relative weakness, responding to negative economic data and uncertainty ahead of tomorrow's Employment Situation Report for August. The consensus expects the employment reading will show that 180,000 nonfarm payrolls were added in August, following July's reading of 255,000. The report has taken on added significance as participants continue to adjust rate hike expectation for the year. In the group, Dow component American Express (AXP 64.86, -0.72) finished at the bottom of the price-weighted index.
In the health care space (-0.2%), health care plan names underperformed while the iShares Nasdaq Biotechnology ETF (IBB 281.44, +0.55) narrowed its week-to-date loss to 1.3%. In the ETF, Mylan Labs (MYL 41.92, -0.44) continued to underperform, sinking 1.0%. The broader sector has declined 0.6% this week, leading only energy (-0.3%; week-to-date: -1.4%) over that time.
Retail names underperformed in the consumer discretionary space (+0.2%) as the SPDR S&P Retail ETF (XRT 44.21, -0.26) declined by 0.6%. The sub-group was under pressure as investors pored over a mixed set of same-store sales data for August. L Brands (LB 74.81, -1.40) underperformed after reporting that August same-store sales increased 2.0%. Separately, Ford (F 12.44, -0.16) fell by 1.3% after announcing that U.S. sales declined by 8.4% year-over-year.
The high-beta chipmakers demonstrated relative strength, evidenced by the 0.9% gain in the PHLX Semiconductor Index. Marvell (MRVL 12.87, +0.47) finished at the top of the price-weighted index. For the week, the index has gained 0.9%, which compares to an advance of 0.3% in the broader sector.
Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 2-yr note ended lower by three basis points (0.78%) while the yield on the 30-yr bond settled flat at 2.23%. For its part, the yield on the benchmark 10-yr note slipped one basis point to 1.57%
Today's participation was below the recent average as fewer than 805 million shares changed hands on the NYSE floor.
Today's economic data included August Challenger Job Cuts, weekly initial claims, revised estimates for second quarter Productivity and Unit Labor Costs, Construction Spending for July, and the ISM Index for August:
- August Challenger Job Cuts reported in at 32,200, which compares to the prior month's reading of 45,300.
- Initial jobless claims increased by 2,000 to 263,000 for the week ending August 27. There were no special factors driving the report, which produced the 78th straight week that initial claims have been below 300,000.
- Continuing claims for the week ending August 20 increased by 14,000 to 2.159 million. That uptick drove the four-week moving average to 2.160 million from 2.155 million the week before.
- Second quarter productivity was revised down to a decline of 0.6% from a preliminary decline of 0.5%. The revision was in-line with the consensus estimate.
- Unit labor costs were revised up to 4.3% (consensus +2.1%) from the preliminary reading of 2.0%.
- The report signals that corporate profit margins are at risk with productivity down and unit labor costs up.
- Total construction spending was unchanged in July (consensus +0.6%) following an upwardly revised 0.9% increase (from -0.6%) for June.
- On a year-over-year basis, total construction spending is up 1.5%, which is the slowest pace of growth since November 2011.
- The total value of construction put in place increased 0.9% versus June, so that will remain a positive input for Q3 GDP forecasts.
- The ISM Manufacturing Index for August produced a big headline disappointment, falling to 49.4 (consensus 52.2) from 52.6 in July. A number below 50.0 denotes a general contraction in the manufacturing sector.
- The report plants a negative seed for third quarter GDP growth prospects and also supports the notion held by many market participants that the Federal Reserve should refrain from raising the fed funds rate at this month's FOMC meeting.
For further details on these economic releases, be sure to visit Economic Calendar page.
Tomorrow's economic data will include the Employment Situation Report for August (consensus 180k) and the Trade Balance for July (consensus -$43.0 billion), which will each cross the wires at 8:30 ET. Separately, Factory Orders for July (consensus +2.0%) will be released at 10:00 ET.
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