4:20 pm : For the first time in over a week, volatility was relatively absent. However, after snapping a three-day losing streak in noticeable fashion a day earlier and being whipsawed since the global sell-off on February 27, it wasn't surprising to see investors look a bit fatigued Wednesday.
Since yesterday's huge rally was based as little on fundamentals as was last week's meltdown, and indicative of short covering activity amid an increasingly pessimistic mindset, today's breather wasn't overly disconcerting. In fact, some semblance of stabilization provides some hope that a bottom may have been put in place.
The absence of any scheduled economic data, until the Fed's Beige Book late in the day, or notable earnings reports, kept follow-through efforts in check throughout most of the session. Some new evidence suggesting the economy may be slowing more than anticipated, however, eventually provided enough fodder for the bears to question the sustainability of yesterday's broad-based bounce and get in the last word.
Before the bell, ADP reported that only 57,000 new private jobs (or 64,000 nonfarm equivalent jobs) were created in February. Since the market is more concerned with growth than inflation, especially following several assertions from former Fed Chairman Greenspan about a possible recession later in the year, the ADP payrolls number checking in at the lowest level since July 2003 raised some anxiety that economists will have to downwardly revise their estimates for Feb. nonfarm payrolls. The current consensus stands at 100,000.
Even though the monthly ADP report lacks credibility, as its miss over the last six months averages 78,000, or nearly twice the 40,000 miss of the more closely-watched data compiled by the Labor Dept., we believe a payroll gain on Friday as low as 50,000 would weigh heavily on a market now increasingly focused on negative items.
At 2:00 ET, the Fed showed that most of its 12 districts reported modest growth, but that several districts also noted some slowing. That took some steam out of what was finally shaping up to be a respectable extension of Tuesday's rally.
Further underscoring nervousness about the pace of economic growth was a subsequent flight-to-quality bid in bonds. The 10-year note finished up 8 ticks, pushing the yield below 4.50%; but that did little for the rate-sensitive Financials sector. After pacing the way yesterday with an impressive 2.1% advance, that sizable gain incited some profit taking and removed some notable leadership.
Energy was the only sector to finish in the plus column, and that was in sympathy with surging oil prices, which near $62/bbl are bearish for stocks. Crude for April delivery closed up 1.9% near $61.85/bbl following an unexpected decline in weekly crude supplies and a large drawdown in gasoline inventories. That provided another excuse to take some money off the table, along with a candid remark from homebuilder DR Horton's CEO who was quoted as saying all 12 months in 2007 are "going to suck."DJ30 -15.14 NASDAQ -10.50 SP500 -3.44 NASDAQ Dec/Adv/Vol 1728/1291/2.00 bln NYSE Dec/Adv/Vol 1616/1640/1.65 bln
