Here’s What the Markets Are Concerned About
Concerns about the military strike on Syria held the stock market to a modest advance on Thursday, despite upbeat economic reports.
The stock market’s response to upbeat economic data was restrained on Thursday, as concerns mounted about the extent of American military involvement in Syria. The ADP National Employment Report indicated that 176,000 private sector payroll jobs were added in August, raising hopes for an upbeat non-farm payrolls report from the Department of Labor on Friday. The reading fell 1,000 jobs short of the expected 177,000 new jobs.
The Institute for Supply Management reported that the headline Non-Manufacturing Index of its August 2013 Non-Manufacturing ISM Report on Business rose to 58.6 percent, compared with July’s 56.0 percent. Economists were expecting a decrease to 55.0 percent. The Department of Labor reported that during the week ending August 31, initial unemployment claims fell to 323,000 from the previous week’s figure of 332,000 — which was revised upward by 1,000 claims. The four-week moving average fell to 328,500 from 331,500 — reaching its lowest level since October of 2007.
The Dow Jones Industrial Average (NYSEARCA:DIA) picked up 6 points to finish Thursday’s trading session at 14,937 for a 0.04 percent advance. The S&P 500 (NYSEARCA:SPY) rose 0.12 percent to close at 1,655. The Nasdaq 100 (NASDAQ:QQQ) advanced 0.17 percent to finish at 3,129. The Russell 2000 (NYSEARCA:IWM) rose 0.30 percent to end the day at 1,028.
In other major markets, oil (NYSEARCA:USO) surged 0.91 percent to close at $38.69. On London’s ICE Futures Europe Exchange, November futures for Brent crude oil advanced 39 cents (0.34 percent) to $113.62/bbl. (NYSEARCA:BNO). December gold futures fell $22.00 (1.58 percent) to $1,368.00 per ounce (NYSEARCA:GLD). Transports were moving along between Wile E. Coyote and The Road Runner on Thursday, as the Dow Jones Transportation Average (NYSEARCA:IYT) accelerated 0.49 percent.
In Japan, good news for the nation’s shipping and steel industries helped those sectors lead Thursday’s stock market advance. The Baltic Dry Index jumped 4.02 percent to 1,215, sending Japanese shipping companies to reach gains as high as 3 percent. An upgrade of Tokyo Steel Manufacturing to “buy” sent the entire Topix Iron and Steel Index soaring 2.5 percent. The yen remained weak at 99.97 per dollar just before Thursday’s closing bell in Tokyo. After the closing bell, the yen became the yenny again, trading at 100 per dollar. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (NYSEARCA:FXY). The Nikkei 225 Stock Average rose 0.08 percent to 14,064 (NYSEARCA:EWJ).
In China, concern that America’s military strike on Syria could escalate and disrupt oil shipping raised investor anxiety and motivated the government to side with Russia in its opposition to the strike. The Shanghai Composite Index declined 0.24 percent 2,122 (NYSEARCA:FXI).
On the other hand, Hong Kong’s Hang Seng Index jumped 1.22 percent to end the session at 22,597 after JPMorgan reported that global economic growth hit a 2.5-year high (NYSEARCA:EWH). The JPMorgan Global All-Industry Output Index rose to 55.2 from July’s 54.0.
In Europe, the major stock indices surged after the European Central Bank announced that it would keep its benchmark interest rate low “for an extended period” (NYSEARVA:VGK). The Euro STOXX 50 Index finished Thursday’s session with a 0.58 percent advance to 2,774 — climbing further above its 50-day moving average of 2,742. Its Relative Strength Index is 50.22 (NYSEARCA:FEZ).
Technical indicators revealed that the S&P 500 failed to break above its 50-day moving average of 1,664 after finishing Thursday’s session with a 0.12 percent advance to 1,655. At this point, a head-and-shoulders pattern is still present on the S&P chart, from the period beginning in early May through the present.
The S&P will need to cross above its 50-day MA to break the neckline of the pattern. (There already had been a pinhead-and-shoulders pattern running from the period beginning on July 10 through August 16.) Its Relative Strength Index rose from 47.56 to 48.48. Although the MACD is below the zero line, it is headed back upward and is poised to cross above the signal line. If it does so, the move will be seen as an indication of a continued advance.
For Thursday, all sectors were in positive territory, except the utilities sector and the consumer staples sector, which declined by 0.41 percent and 0.14 percent, respectively.
Consumer Discretionary (NYSEARCA:XLY): +0.03 percent
Technology: (NYSEARCA:XLK): +0.05 percent
Industrials (NYSEARCA:XLI): +0.23 percent
Materials: (NYSEARCA:XLB): +0.17 percent
Energy (NYSEARCA:XLE): +0.33 percent
Financials: (NYSEARCA:XLF): +0.23 percent
Utilities (NYSEARCA:XLU): -0.41 percent
Health Care: (NYSEARCA:XLV): +0.14 percent
Consumer Staples (NYSEARCA:XLP): -0.14 percent
Bottom line: Strong economic reports from the Institute for Supply Management and the Department of Labor, as well as a “good enough” ADP National Employment Report failed to do much for stock prices on Thursday, as investors remained concerned that American military intervention in Syria might go beyond a mere airstrike.
John Nyaradi is the author of The ETF Investing Premium Newsletter.