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Stocks Fire Higher Prior to Jobs Report

Posted: 5/7/2015 4:15 PM ET


The U.S. equity markets bounced back from two days of solid declines with stocks finishing the session higher as traders await tomorrow's release of the widely followed non-farm payrolls report. Treasuries and the U.S. dollar were also higher with domestic economic data for the day a bit on the lighter side, while gold and crude oil prices were lower and corporate earnings reports continued to drive some action on the Street.

The Dow Jones Industrial Average (DJIA) advanced 82 points (0.5%) to 17,924, the S&P 500 Index gained 8 points (0.4%) to 2,088, and the Nasdaq Composite increased 26 points (0.5%) to 4,957. In moderately-heavy volume, 804 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude slid $1.99 to $58.94 per barrel, wholesale gasoline was $0.05 lower at $1.99 per gallon, and the Bloomberg gold spot price decreased $8.91 to $1,183.33 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 94.61.

Whole Foods Market Inc. (WFM $43) reported fiscal 2Q earnings-per-share (EPS) ex-items of $0.43, inline with the FactSet estimate, as revenues increased 9.8% year-over-year (y/y) to $3.6 billion, compared to the forecasted $3.7 billion. 2Q same-store sales rose 3.6% y/y, below the 5.2% growth that was projected. WFM issued a softer-than-expected full-year revenue growth forecast and shares finished sharply lower.

Tesla Motors Inc. (TSLA $237) posted a 1Q loss of $0.36 per share, versus the estimated $0.50 per share shortfall, with revenues jumping 55.0% y/y to $1.1 billion, above the projected $1.0 billion. Analysts were upbeat by the company's better-than-expected results, which included meeting its gross margin guidance for the first time in three quarters and reiterating its full-year delivery guidance. However, shares were lower as its 1Q cash burn rate disappointed and its forecasted increased inventory build is exacerbating concerns that it will continue to drain cash.

Alibaba Group Holding Ltd. (BABA $86) reported fiscal 4Q EPS ex-items of $0.48, above the $0.42 estimate, as revenues rose 45.0% y/y to $2.8 billion, roughly inline with forecasts. The Chinese e-commerce company said its active users on its mobile platforms rose quarter-over-quarter (q/q) and y/y, while its mobile transactions accounted for a majority of its total transactions. Separately, the company said its current Chief Operating Officer, Daniel Zhang will become its new Chief Executive Officer. BABA closed decisively higher.

Keurig Green Mountain Inc. (GMCR $98) announced fiscal 2Q earnings of $1.03, two cents shy of expectations, as revenues rose 2.0% y/y to $1.1 billion, below the forecasted $1.2 billion. The maker of coffee brewing systems said it saw a slower-than-expected transition to its Keurig 2.0 system, while it is taking actions to reduce brewer inventories and enhance its 2.0 brewer packaging. GMCR lowered its full-year guidance and shares traded sharply lower.

Consumer credit helped by rebound in revolving debt and jobless claims lower than expected

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by the most in eight months to $20.5 billion during March, well north of the $15.8 billion forecast of economists polled by Bloomberg, while February's figure was adjusted downward to an increase of $14.8 billion from the originally reported $15.5 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $16.2 billion, while revolving debt, which includes credit cards, advanced by $4.4 billion.

Weekly initial jobless claims (chart) rose by 3,000 to 265,000 last week, below the 278,000 Bloomberg estimate, as the prior week's figure was unrevised at 262,000. The four-week moving average declined by 4,250 to 279,500, while continuing claims decreased 28,000 to 2,228,000, south of the forecasted 2,270,000 level.

Treasuries were mostly higher, with the yield on the 2-year note losing 1 basis point (bp) to 0.63%, the yield on the 10-year note dropping 6 bps to 2.18% and the 30-year bond rate falling 9 bps to 2.91%.

Tomorrow will bring the headlining data piece for the week's U.S. economic calendar, in the form of the April nonfarm payroll report, projected to show 230,000 jobs were gained after posting a disappointing rise of 126,000 jobs in March. Private sector employment is estimated to rebound by 225,000 jobs after March's gain of 129,000. The unemployment rate is projected to dip to 5.4% from 5.5%, while average hourly earnings are expected to rise 0.2% month-over-month (m/m) following March's 0.3% gain. The report could give the Fed some confidence that the soft patch for the economy in 1Q was due to "transitory factors." The wage figure is an area of the report that may garner heightened attention due to its inflation implications and given the recent rally in bond yields.

See Schwab's Chief Investment Strategist, Liz Ann Sonders', and Windhaven Investment Management's Chief Investment Strategist, Christian Menegatti's, Ph.D., article, Who Is Afraid of the Inflation Ogre?, which notes that the disinflationary scenario the U.S. is enjoying could turn into a mild inflation scare until the Fed catches up. Schwab's Chief Fixed Income Strategist, Kathy Jones adds in her article, The Fed's Message: Steady for Now, it will take several months’ worth of data to assess the magnitude of the rebound in economic growth after the weak first quarter. For now, the message is that the Fed still appears to be in “wait and see” mode. Read both articles at www.schwab.com/marketinsight.

The domestic docket for tomorrow will also bring about the latest report on wholesale inventories, with economists expecting a 0.3% m/m increase for March, matching the increase seen in February.

Europe mixed, Asia lower

The European equity markets finished mixed on Election Day in the U.K., with no clear indication of one party gaining a majority of seats in parliament, while Greek debt deal uncertainty remained ahead of a key meeting on Monday, though Greece's equity markets rallied. Technology issues led to the upside courtesy of some upbeat results out of the sector, while March German factory orders rose by a smaller amount than expected and France's trade deficit came in wider than expected in March.

Stocks in Asia finished lower on the heels of yesterday's disappointing employment data out of the U.S., as well as concerns about the recent rally in interest rates in the U.S. and Europe. Also, growth concerns out of Australia following some disappointing data and festering uneasiness in China regarding restrictions to curb speculation in the equity markets and liquidity fears as IPOs are set to hit the market weighed on sentiment. Australia reported an unexpected drop in the nation's employment change, while Japanese markets returned to action following a three-day holiday, with exporters being hamstrung by strength in the yen. Finally, India's S&P BSE Sensex 30 Index entered correction territory, as heavy selling from foreign investors continued.

The international economic calendar for tomorrow will yield reports on industrial production and trade data from Germany, house prices and trade data from the U.K., and industrial production from Italy.

Schwab Center for Financial Research - Market Analysis Group

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