Stocks End Mixed On Lackluster Economic Data

Wednesday, January 6, 2010
Market Commentary:

The major averages ended mixed after a private report from ADP showed employers cut more jobs than expected last month and several Federal Reserve officials said they are willing to entertain the notion of more stimulus measures in 2010. Volume, an important indicator of institutional sponsorship, was reported lower than Tuesday’s totals on the NYSE and about even on the Nasdaq exchange which indicated large institutions were not aggressively dumping stocks. Advancers led decliners on the NYSE, but decliners narrowly led advancers by a 5-to-4 ratio on the Nasdaq exchange. There were 57 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, slightly lower than the total of 58 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

ADP Jobs Data Disappoints:

Before Wednesday’s opening bell, ADP Employer Services Inc., the country’s largest private payrolls firm, said US employers slashed -84,000 jobs in December which fell short of the Street’s estimate of -75,000. The ADP report usually sets the tone for the government’s official non-farm payrolls report which is slated to be released before Friday’s opening bell. At this point, economists believe that Friday’s report will show payrolls were unchanged in December which will be the first month employment did not decline since the recession began two in 2007.

ISM Service Index Misses Estimates:

At 10:00AM EST, the Institute for Supply Management (ISM) released a weaker than expected report on the service sector. Its non-manufacturing business index rose to 50.1, from 48.7 in the prior month. The reading topped the boom/bust level of 50 which shows growth but fell short of the 50.5 consensus. The ISM surveys nearly 400 firms from 60 sectors across the country which include: agriculture, construction, transportation, mining, communications, wholesale and retail trade. It is important to note that the service sector currently makes up approximately +90% of the economy and tends to be a good proxy for GDP.

Fed Minutes:

At 2:00 PM EST, the Federal Open Market Committee (FOMC) released the minutes of its last meeting in 2009. The minutes for the December 15-16 FOMC meeting showed that several Fed officials are open to further stimulus measures, if needed, in 2010. Fed governors and District presidents had different opinions on whether or not inflation was a concern at this point of the economic recovery but they all agreed that inflation remains tolerable. The Fed modestly upgraded the overall economy and said that downside risks “diminished a bit further” in recent months. The next Fed decision will be announced at 2:15pm EST on Wednesday, January 27, 2010.

Market Action- Price & Volume Are Still Healthy:

Stocks remain strong as investors digested the latest round of weaker than expected economic data. Friday’s jobs report will likely set the stage for the next move in the market. Until then, expect investors to avoid putting on excessive risk as they await the jobs report for a better reading on the economy.

The current rally is in the middle of it 44th week (since the March 2009 lows) and on all accounts still looks strong. In addition, most bull markets last for approximately 36 months so the fact that we are beginning our 10th month suggests we have more room to go. The Dow Jones Industrial Average, small cap Russell 2000 Index, S&P 500 Index and Nasdaq Composite and NYSE Composite indices are all trading near their respective 2009 highs which also bodes well for this rally. Leadership is beginning to expand which is a welcomed sign and ideally it will continue to expand over the next few weeks as the major averages continue advancing.

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