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Stock Market News for February 06, 2014

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Favorable service sector data failed to add enough strength to the benchmarks yesterday as they suffered another round of losses. A choppy session saw the benchmarks open lower, followed by S&P 500 and Dow’s momentary halts in the green zone, after ultimately closing in the red. Separately, private employers were reported to have added lesser jobs than expected.

The Dow Jones Industrial Average (DJI) dropped a meager 0.03% to close yesterday’s session at 15,440.23. The Standard & Poor 500 was down 0.2% to finish at 1,751.64. The tech-laden Nasdaq Composite Index finished at 4,011.55, down 0.5%. The fear-gauge CBOE Volatility Index (VIX) rose 4.4% to settle at 19.95. About 6.6 billion shares changed hands on the US exchanges, lower than January’s average of 6.94 billion. Decliners outran the advancers on the New York Stock Exchange as for 56% decliners, 40% stocks finished in the green.

It was a choppy session for the benchmarks as they had opened sharply lower before overcoming a large chunk of losses. The S&P 500 had dropped to a session low of 1,737.92, its lowest level since Oct 18. The Dow too wiped out its earlier losses to turn positive for a while, but the blue-chip index failed to hold on to those gains till the closing bell. The choppy session was largely a result of mixed economic reports. This set of reports was closely awaited after the markets were routed on Monday following dismal domestic manufacturing data.

Coming to the reports, the Institute for Supply Management reported that economic activity in non-manufacturing sector improved in January with business activity and new orders index also showing an uptrend. The Institute for Supply Management Non-Manufacturing Business Survey Committee noted that the NMI improved 1 percentage point on monthly basis to 54% in January. This also beat the consensus estimate of an increase to 53.6.

Also, Non-Manufacturing Business Activity Index was up 2 percentage points to 56.3% and the New Orders Index added 0.5 percentage point from December to move to 50.9% in January.

This data added some bullishness to the markets before fewer than expected private sector job additions offset these gains. The national employment report from Automatic Data Processing, Inc. (NASDAQ:ADP) stated 175, 000 private jobs were added in January, lower than expectations of 189,000 job additions. Also, December’s reading was revised downwards, from 238,000 to 227, 000. January’s lesser-than-expected job additions were also the weakest since last August. This marks the third straight month of drop in job additions, as 289,000 jobs were added in November, followed by 227,000 in December and 175,000 in January.

The negative tone of the reports is particularly significant since ISM had reported dismal domestic manufacturing data on Monday that hammered benchmarks. According to the ISM, January PMI has dropped 5.2 percentage points from December’s adjusted reading of 56.5% to 51.2%. The drop to 52.1% in January was in sharp contrast to economists’ expectation of an increase to 56.1%.

Benchmarks were hammered on Monday following the discouraging data and the blue-chip index had suffered its seventh triple-digit loss of the year. The indices suffered their worst declines since June last year that dragged them below key technical levels. The Dow closed below its 200-day moving after losing 326 points, while S&P 500 and Nasdaq also lost sharply.

Benchmarks’ fall on Wednesday only added to the negative run and Tuesday’s gains could hardly erode the losses. As of now, indices are staring at weekly losses. The Dow, S&P 500 and the Nasdaq are down 1.7%, 1.7% and 2.3%, respectively, so far.

Coming back to Wednesday’s events, Ralph Lauren Corporation (NYSE:RL) said earnings for the third quarter of fiscal 2014 had surged 11.3% year over year to $2.57 per share. The profits were also ahead of the Zacks Consensus Estimate of $2.51. Despite encouraging profits, shares of this retailer dropped 3.6%.

Separately, Gilead Sciences Inc. (NASDAQ:GILD) was a big drag on the S&P 500 as it lost 4.72%. The decline came a day after reporting favorable fourth quarter results. Earnings in the quarter were 52 cents ahead of the Zacks Consensus Estimate of 49 cents and improved 8.3% year over year. Revenues were up 21% from last year’s comparable quarter to $3.1 billion.

Among the sectors, utilities sector was a big decliner. The Utilities Select Sector SPDR (XLU) lost 0.4% and stocks such as Duke Energy Corporation (NYSE:DUK) (0.5%), Dominion Resources, Inc. (NYSE:D), NextEra Energy, Inc. (NYSE:NEE), Southern Company (NYSE:SO) and Exelon Corporation (NYSE:EXC) declined 0.5%, 0.2%, 0.9%, 0.4% and 0.2%, respectively.

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