U.S stocks lost a little ground yesterday, falling back to the low-end of this range tight range (at least in terms of near-term standards) we’ve been in over the past 11 sessions.  A disappointing employment survey got stocks off to a bad start as they hit the day’s nadir just 30 minutes into the session.  The market did showed a little life by mid-day as the S&P 500 moved into positive territory, but retreated again in the final hour.  With stocks closed tomorrow even as we get the March payrolls report, traders are just not willing to get in front of this data and hold those positions into the weekend. 

It’s more than appropriate for the Exchange to close and observe Good Friday – don’t get me wrong I’m not at all inferring the market should open.  Rather, the Labor Department should delay the employment report until Monday.  The monthly jobs report is almost always released on the first Friday of the month, but this is the most market-moving data we receive and thus should be held until next week. 

Only two of the major 10 industry groups closed higher yesterday, energy led the way and financials posted a slight gain.  Consumer discretionary shares led the decliners, with technology and industrials rounding out the three worst performers.

Yesterday ended the first quarter and the major indices recorded another strong three-month period, marking the fourth-straight quarterly gain.  Mid and small-cap stocks led the way, as the international indices lagged – you can see the results in the table below the jump via the YTD column. 

For the quarter just ended, the Dow Industrials gained 4.11%; the S&P 500 added 4.87%; the NASDAQ Composite rallied 5.68%; the S&P 400 (mid-cap) surged 8.70%; the Russell 200 (small cap) jumped 8.51%.  Overseas indices lagged as the main international index for developed economies rose just 0.22% and emerging markets added 2.11%

Market Activity for March 31, 2010

ADP Employment Change

The preliminary employment survey from Automatic Data Processing Inc. – a business outsourcing firm that processes payrolls for one in six U.S. workers – projected that private-sector jobs fell 23,000 in March, which was quite a ways off from the +40K estimate.  The official employment report, which will be released on Friday, is expected to show a gain of 184,000 jobs – about 100K via the public sector as the government begins to ramp up hiring for the 2010 census and roughly 80K from private industries.   ADP only gauges private-sector activity.

The survey projected that small firms, < 50 employees, cut 12,000 positions; medium-sized firms < 500 employees, cut 4,000; and large firms shed 7,000.

The ADP survey has to be watched, but it isn’t always accurate so one shouldn’t place too much emphasis on the results.  More important to me is the jobless claims data, particularly the results from the week of March 12 as this corresponds to the employment survey data.  That reading showed initial jobless claims remained above the 450K level, even if it was down from 486,000 in mid February.  This is a level that does not predict much by way of job growth.  This month may be a bit unique though as there is a widely-held belief that the bad weather of February held employment back a bit so we’ll see a bounce-back effect in payrolls for March.  That belief was not held by ADP; their report specifically stated that the February report “was not restrained” by weather so we shouldn’t expect a weather-related rebound. 

I continue to believe we’ll see some mild private-sector job growth over the next few months (the census hiring will boost the overall readings as public sector will show big gains), but the jobless claims data isn’t predicting it.  Initial claims have to fall to the 400K levels to truly signal job growth will trend higher.

Chicago PMI

The Chicago Purchasing Managers Index (factory activity in the region) also disappointed as it came in at 58.8 for March.  While this is a strong reading, the market expected a print of 61.0.  The previous month’s reading of 62.6 was the highest since the spring of 2005.  A number above 50 marks expansion. 

New orders fell a bit but remained very strong at 61.8; the backlog of orders fell to 54.3 from 58.5, but this is the fourth month in expansion territory; the employment gauge held steady at 53.1; inventories jumped 10 points, rising above 50 for the first time since October 2008. 

That inventory reading is going be helpful for first-quarter GDP if today’s nationwide manufacturing report shows the same thing.  Heretofore the expectation has been that stockpile rebuilding wouldn’t help growth much during Q1 as the business inventory reports we’ve received thus far have been down.  If ISM (that nationwide factory report) posts a good inventory reading, we can have some confidence that the business inventories readings for February and March will be good – there’s a big lag to the official inventory readings, we won’t get the February number until April 14.

Have a great day!

Brent Vondera, Senior Analyst

Phone: 636-449-4900