Stocks pull out of mid-day slump as anticipation concerning Friday’s non-farm payrolls report boosts “risk on” sentiment.
The lunchtime crowd took to selling their stocks on Thursday after the U.S. Department of Labor’s report on initial unemployment claims exceeded economists’ expectations by a mere 1,000 claims to bring the initial figure for the week ending June 1 to 346,000. After Wednesday’s ADP National Employment Report indicated that private sector payroll jobs added during May fell 21 percent short of economists’ expectations, Thursday’s unemployment report caused the fear factor to become elevated at mid-day, as Thursday’s VIX chart illustrated.
Stock prices advanced as one camp of investors hoped that a dismal non-farm payrolls report on Friday would motivate the U.S. Federal Reserve to mothball its plans to attenuate the quantitative easing program. Another camp of investors was of a mindset to assume that because the initial unemployment claims figure was basically in line with expectations, a report that the expected 167,000 new jobs were added in May would cause a rally. Despite the fact that one camp was anticipating a downbeat BLS report while another camp expected an upbeat report, both camps were in a “risk on” mode for the final 90 minutes of the trading day.
The Dow Jones Industrial Average (NYSEARCA:DIA) gained 80 points to finish Thursday’s trading session at 15,040 for a 0.53-percent advance. The S&P 500 (NYSEARCA:SPY) finished Thursday’s session with 0.85-percent surge to close at 1,622. The Nasdaq 100 (NASDAQ:QQQ) rose 0.45 percent to close at 2,950. The Russell 2000 (NYSEARCA:IWM) jumped 1.17 percent to 979. In other major markets, oil (NYSEARCA:USO) climbed 1.08 percent to close at $33.62.
On London’s ICE Futures Europe Exchange, July futures for Brent crude oil advanced by 67 cents (0.65 percent) to $103.40/bbl. (NYSEARCA:BNO). June gold futures advanced by $14.50, or 1.04 percent, to $1,412.90 per ounce (NYSEARCA:GLD). Transports were in the express lane, with the Dow Jones Transportation Index (NYSEARCA:IYT) surging by 0.93 percent.
European stocks retreated from another unrealistic advance on Thursday after ECB president Mario Draghi spoiled the party with the grim news that Eurozone GDP is expected to finish 2013 in the red by 0.6 percent (NYSEARCA:VGK). The Euro STOXX 50 Index finished Thursday’s session with a 1.22 percent swoon to 2,676 – remaining below its 50-day moving average of 2,711. Its Relative Strength Index is 37.39 (NYSEARCA:FEZ).
Japanese stocks continued to fade as the yen rose during Thursday’s trading session in Tokyo. The Nikkei 225 Stock Average dropped below 13,000 for the first time in two months as the yen strengthened to 98.84 per dollar. A stronger yen causes Japanese exports to be less competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average fell 0.85 percent to 12,904 (NYSEARCA:EWJ).
In China, stocks declined for the sixth consecutive day as the market continued to undergo a correction in the wake of downbeat manufacturing PMI reports from both the government and HSBC. The telecom and real estate sectors led Thursday’s decline on volume which was approximately 20 percent thinner than average. The Shanghai Composite Index sank 1.12 percent to 2,242 (NYSEARCA:FXI). Hong Kong’s Hang Seng Index dropped 1.05 percent to 21,838 (NYSEARCA:EWH).
Technical indicators reveal that the S&P 500 remains slightly above its 50-day moving average of 1,605 after closing at 1,622. The formation of a head-and-shoulders pattern on the S&P chart is now complete, which would signal a decline. This pattern often becomes a “self-fulfilling prophecy” – investors spot it and head for the exits. Its Relative Strength Index rose from 42.32 to 47.60. The MACD crossed below the signal line and both are on downward trajectories, providing more support for the likelihood of a decline.
For the day, all sectors were solidly positive, with the healthcare and financial sectors taking the clear lead with gains of 1.46 percent and 1.39 percent, respectively.
Consumer Discretionary (NYSEARCA:XLY): +1.05 percent
Technology (NYSEARCA:XLK): +0.22 percent
Industrials (NYSEARCA:XLI): +0.63 percent
Materials (NYSEARCA:XLB): +0.66 percent
Energy (NYSEARCA:XLE): +0.75 percent
Financials (NYSEARCA:XLF): +1.39 percent
Utilities (NYSEARCA:XLU): +1.18 percent
Health Care (NYSEARCA:XLV): +1.46 percent
Consumer Staples (NYSEARCA:XLP): +0.42 percent
Bottom line: Stocks made significant gains on Thursday as investors, anticipating good news from the U.S. Bureau of Labor Statistics on Friday, embraced risk to the same degree as investors who expected bad news with the belief that a downbeat report would cause the Fed to delay its planned cutback to its bond-buying program.
John Nyaradi is the author of The ETF Investing Premium Newsletter.