After four consecutive weeks of losses, investor hopes were dashed once again this week as weak economic data dragged the indices down to their fifth straight week of losses. On Friday, weak jobs data from the Labor department ensured that indices remained in the red, reflecting a slowing economic recovery.
On Friday, the Dow Jones Industrial Average (DJIA) dropped 0.8% to settle at 12,151.26. The Standard & Poor 500 (S&P 500) shed a little less than 1.0% to close at 1,300.16. The Nasdaq Composite Index finished the day at 2,732.78, after shedding 1.5%. On the New York Stock Exchange, the American Stock Exchange and Nasdaq, consolidated volumes were weak at 6.84 billion shares, compared with last year’s daily average of 8.47 billion. On the NYSE, for every couple of stocks that declined, only one stock managed to climb higher. As we had predicted earlier last week, markets continued their losing streak into the fifth-straight month as the benchmarks lost 2.3% for the week ending June 3rd.
In the first of its kind press briefing by the Federal Reserve Chairman Ben Bernanke, post the Federal Open Market Committee’s meeting held in late April, the Fed chairman had said the jobs markets pose a larger concern for the economy than inflation which may only be short-lived. For the past few months job data has clearly reflected this view, returning a gloomy picture of the economy on most occasions. It was no different this time as the job data released by the government yet again failed to indicate any significant improvement in the economy and subsequently weighed down the indices.
According to the report, the economy added lesser jobs, which was also the smallest gain since September, while the unemployment rate surged in May. The U.S. Bureau of Labor Statistics reported nonfarm payroll employment to have added a mere 54,000 jobs in May. That is much worse than consensus expectations for a gain of 169,000. Additionally, the unemployment rate surged to its highest level since December last year, rising to 9.1% in May, versus economists’ expectation of the rate remaining flat at 9.0%. The household survey data also showed that 13.9 million people were unemployed. The report said: “In May, the number of long-term unemployed (those jobless for 27 weeks and over) increased by 361,000 to 6.2 million; their share of unemployment increased to 45.1 percent”. Unemployment in the government continued to decline as the report stated: “Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were little changed, and local government employment continued to decline”.
However, a report from the Institute of Supply Management helped to erase some losses after the service sector grew at a faster rate in May compared to April. The Institute for Supply Management said economic activity in the non-manufacturing sector grew in May for the 18th consecutive month and reported a 54.6% jump in the non-manufacturing index, 1.8% higher than 52.8% recorded last month. It also stated: “The Non-Manufacturing Business Activity Index decreased 0.1 percentage point to 53.6 percent, reflecting growth for the 22nd consecutive month, but at a slightly slower rate than in April. The New Orders Index increased by 4.1 percentage points to 56.8 percent. The Employment Index increased 2.1 percentage points to 54 percent, indicating growth in employment for the ninth consecutive month and at a faster rate. The Prices Index decreased 0.5 percentage point to 69.6 percent, indicating that prices increased at a slightly slower rate in May when compared to April”.
On the New York Mercantile Exchange, crude oil futures for July delivery dipped 18 cents to settle at $100.22 per barrel. However, the energy sector climbed higher on Friday, bucking the trend of declining crude prices leading to a fall in energy stocks. The Energy Select Sector SPDR (XLE) fund increased marginally, by 0.03% and reports suggest that this surge could have been due to the jump in natural gas supply as reported by the Department of Energy’s Energy Information Administration. The department reported a jump of 83 billion cubic feet in the storage of natural gas for the week. Gainers for the sector included National Oilwell Varco, Inc. (NYSE:NOV), Southwestern Energy Co. (NYSE:SWN) and Baker Hughes Incorporated (NYSE:BHI) and they increased 1.4%, 3.6% and 1.3%, respectively.
Coming to the financial sector, the Financial Select Sector SPDR (XLF) fund declined by 0.7%. The major decliners for this category were JPMorgan Chase & Co. (NYSE:JPM), Citigroup, Inc. (NYSE:C), American International Group, Inc. (NYSE:AIG) as they shed 0.1%, 0.4% and 1.3%. However, Morgan Stanley (NYSE:MS) and The Goldman Sachs Group, Inc. (NYSE:GS) surged 0.5% and 0.7%, respectively.
AMER INTL GRP (AIG): Free Stock Analysis Report
BAKER-HUGHES (BHI): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
NATL OILWELL VR (NOV): Free Stock Analysis Report
SOUTHWESTRN ENE (SWN): Free Stock Analysis Report
Zacks Investment Research
