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Stock Market News for June 05, 2014

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Benchmarks erased day’s initial losses and ended in the green after investors shrugged off dismal labor market data to focus on an encouraging services sector report. The S&P 500 ended at another high; the sixteenth one this year. Separately, the Nasdaq was boosted by gains in tech-bellwether Apple and bio-tech stocks.

For a look at the issues currently facing the markets, make sure to read today’s Ahead of Wall Street article
The Dow Jones Industrial Average (DJI) gained 0.1% to close Wednesday’s trading session at 16,737.53. The Standard & Poor 500 (S&P 500) went up 0.2% to finish at 1,927.88. The tech-laden Nasdaq Composite Index advanced 0.4% to 4,251.64. The fear-gauge CBOE Volatility Index (VIX) went up 1.8% to settle at 12.08. Total volume for the day was roughly 5.0 billion shares, lower than this month’s average of 5.75 billion. Advancers outpaced declining stocks on the NYSE.  For 50% stocks that advanced, 46% declined.
Investors were enthused by a rise in ISM Services Index in May, which touched the highest level since August 2013. According to data from the Institute for Supply Management, the Non-Manufacturing Index for May increased 1.1 percentage points to 56.3% from April’s reading of 55.2%. The rise was more than the consensus estimate of an increase to 55.6%. The New Orders Index also gained 2.3 percentage points to 60.5% in May. The Employment Index too increased 1.1 percentage points to 52.4% in May, indicating growth at a faster pace for the third successive month.
However, labor market data was far from encouraging. A report from Automatic Data Processing, Inc. (NASDAQ:ADP) showed private sector hiring in May increased at the slowest pace in four months. Private-sector jobs increased to 179,000 in May, well below analysts’ estimate of 210,000. The rise in private-sector jobs in May was much less than the figure of 215,000 recorded in April.
Another report by the U.S. Bureau of Labor Statistics showed that nonfarm business sector labor productivity declined 3.2% in the first quarter. The decrease was more than the consensus expectation of a decline by 2.6%. This drop in first quarter productivity level was in contrast to the 2.3% rise in the fourth quarter of 2013. Harsh winter weather was cited to be the reason behind this drop in productivity during the first quarter. The unit labor cost increased 5.7% in the first quarter of 2014.
Additionally, the U.S. trade deficit rose to a two-year high in April. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, reported that goods and services deficit had increased to $47.2 billion in April from $44.20 billion in March. Exports in April decreased $0.3 billion from March’s exports of $193.7 billion, while imports increased $2.7 billion from March’s imports of $237.8 billion.
Separately, the Federal Reserve’s Beige Book indicated that economic conditions improved moderately in all the 12 Federal Reserve Districts. However, compared with the previous report in April, the pace of growth picked up in only 2 districts, Cleveland and St. Louis. According to the report, consumer spending and manufacturing activity expanded across almost all the districts. Tourism was another bright spot, mostly in the eastern seaboard districts.
Meanwhile, investors also awaited the outcome of Thursday’s ECB meeting. Investors are expecting a reduction in deposit rates. They are also anticipating that central bank might introduce a QE-style asset purchase program. Earlier in May, European Central Bank’s (ECB) President Mario Draghi hinted the ECB might cut rates and provide more economic stimulus during the next policy meeting.
Investors also remained focused on May’s Nonfarm Payrolls report; scheduled for release on Friday. In May, the U.S. Bureau of Labor Statistics said total nonfarm payroll employment had risen to 288,000 in April. The unemployment rate also dropped to 6.3% in April from 6.7% in March.
The Nasdaq got a boost from its biggest component Apple Inc. (NASDAQ:AAPL). Shares of Apple surged 1.1%. Starting Monday, the iPad maker will traded on a split-adjusted basis. Apple’s board of directors had announced a 7:1 stock split in April.
Bio-tech stocks also had a positive impact on the Nasdaq. Shares of Gilead Sciences Inc. (NASDAQ:GILD), Amgen Inc. (NASDAQ:AMGN), Biogen Idec Inc. (NASDAQ:BIIB) and Celgene Corporation (NASDAQ:CELG) increased 0.6%, 1.7%, 0.7% and 2.1%, respectively.
Seven out of 10 sectors of the S&P 500 ended in the green. The Consumer Discretionary Select Sector SPDR (NYSE:XLY) led the advance as the sector gained 0.5%. Key stocks from the sector such as The Walt Disney Company (NYSE:DIS), McDonald's Corp. (NYSE:MCD), Ford Motor Co. (NYSE:F) and Twenty-First Century Fox, Inc. (NASDAQ:FOXA) increased 0.4%, 0.9%, 1.5% and 0.3%, respectively

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