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Discouraging reports on private sector hiring dampened investor sentiment on Wednesday. Investors turned cautious following comments made by Defense Secretary Chuck Hagel regarding North Korea. Meanwhile, comments from president of San Francisco Federal Reserve John Williams added fuel to investor concerns. All the top ten S&P 500 industry groups suffered losses, among which energy stocks suffered the most.
The Dow Jones Industrial Average (DJI) fell 0.8% to close the day at 14,550.35. The S&P 500 lost 1.1% to finish yesterday’s trading session at 1,553.69. The tech-laden Nasdaq Composite Index declined 1.1% to end at 3,218.60. The fear-gauge CBOE Volatility Index (VIX) gained almost 11.2% to settle at 14.21. Consolidated volumes on the New York Stock Exchange, American Stock Exchange and Nasdaq were roughly 7.1 billion shares, above 2012’s average of 6.48 billion shares. Declining stocks outnumbered the advancers. For the 23% that advanced, 75% declined.
Weak private sector employment numbers came as a surprise to investors. According to the National Employment Report released by Automatic Data Processing (NASDAQ:ADP), on a seasonally adjusted basis, 158,000 jobs were added in March. These numbers are well below the figure of 237,000 added in February. Of the 158,000 jobs added, 74,000 jobs were added by small business while 37,000 and 47,000 were added by medium and large businesses respectively. Initial claims data and the unemployment rate, due on Thursday and Friday, respectively will determine investor sentiment going forward.
According to the Institute of Supply Management (ISM), the Non-Manufacturing Index (NMI) came in at 54.4% in March. This was 1.6% lower than the figure reported in February. Among the fifteen industries included in the index, only two sectors, imports and supply deliveries, grew month over month.
Investor sentiment was also affected by comments the president of San Francisco Federal Reserve, John Williams. He said that if the economy continues to improve and post strong economic numbers, like in recent months, there is a possibility that monetary stimulus will be withdrawn. Since the start of 2013, the markets have witnessed strong corporate results, an improving housing sector and a brighter job scenario. The Federal Reserve’s stimulus package has also helped markets rise significantly.
"I expect we will meet the test for substantial improvement in the outlook for the labor market by this summer. If that happens, we could start tapering our purchases then," San Francisco Federal Reserve Bank President John Williams said in remarks prepared for delivery to Town Hall Los Angeles. "If all goes as hoped, we could end the purchase program sometime late this year,” he added.
On the international front, Defense Secretary, Chuck Hagel today said U.S. leaders will take North Korean threats seriously and will take appropriate actions for defense. According to the U.S. Department of Defense, North Korea has threatened to attack Seoul, South Korean capital, and launch missiles on Guam, Hawaii and western United States. In response to the North Korean threat, the Department of Defense has sent a land-based missile defense system to Guam, 2,000 miles from South Korea. This move has been taken to defend from possible North Korean attacks. Hagel described the threat as “a real and clear danger and threat” to the United States.
Energy stocks were the biggest losers among the top ten S&P 500 industry groups. The Energy Select Sector SPDR (XLE) lost 1.9%. Stocks such as Chevron Corporation (NYSE:CVX), Exxon Mobil Corporation (NYSE:XOM), Hess Corp. (NYSE:HES), Schlumberger Limited. (NYSE:SLB) and ConocoPhillips (NYSE:COP) declined 1.0%, 0.7%, 2.8%, 1.1% and 1.3%, respectively.