CLOSING WRAP-UP, April 1
By Jody Osborne, Optionetics.com
4/1/2005 5:00 PM EST
Stocks struggled once again this past week, with Friday’s session highlighted by a disappointing employment report. The Dow ($INDU) started higher on the session than proceeded to move lower. Ultimately, the Dow gave up 99.46 points to 10,404.30. The S&P 500 ($SPX) followed a similar pattern, falling 7.67 points to 1,172.92. The Nasdaq ($COMPQ) declined 14.42 points, or 0.72 percent, to 1,984.81. Volume was strong with the NYSE trading 1.76 billion shares and the Naz turning over 1.90 billion shares. Market breadth was negative by a 16-to-17 and 11-to-20 margin on the Big Board and Naz respectively.
Economic news dominated talk today, with the employment data garnering a lot of the attention. However, traders’ also got the ISM Index and consumer sentiment data, along with construction spending info. At first, stocks rallied on the jobs report data, which showed nonfarm payrolls growth of just 110,000. This was half of expectations, but eased fears of inflation and that the Fed would raise rates more aggressively. Average hourly earnings rose 0.3 percent, roughly in line with expectations, but the 12-month gain is at 2.6 percent. This is below inflation and the productivity growth rate, leaving little concern about wage pressure inflation.
Though the jobs report boosted stocks, the ISM Index released later reversed these gains. This measure of manufacturing activity in the U.S. slipped slightly, but a five month high in the prices paid component sent inflation worries back to the forefront. The ISM services index was inadvertently released this morning as well, showing moderate gains and a one point decline in the prices paid index. However, this component still sits at 65.6, which is a high level. The manufacturing index rose to 73.0 in March from 65.5 in February.
Consumer sentiment fell in March to 92.6 from 94.1 in February as measured by the University of Michigan. High fuel prices and a tougher jobs market during the month kept sentiment down and there are rising concerns that consumer spending will decrease as a result of these problems. The other report released Friday was the construction spending report, which rose 0.4 percent against estimates for growth of 0.7 percent.
Overall, traders’ weren’t overly impressed with today’s economic news and the fact oil prices continued to rise didn’t help. Crude prices rose $1.87 Friday to $57.27 and rose 4.4 percent on the week. Gasoline prices reached a new all-time high today, closing the session at $1.73, a gain of 4.1 percent on the session. As gasoline prices rise, it acts like a tax on consumers and this can hurt consumer spending. In fact, shares of Wal-Mart (WMT) fell on the session because of these concerns.
The quarter got off to abad start and the Naz moved below its 200-day moving average. However, the SPX and Dow held support, but another session like Friday will push these major indices below support as well. Going forward, oil prices will continue to be a focus, but we also are entering earnings season and this will also have an impact on trading. The bulls are hoping that strong earnings and outlooks will provide a base for a rally; whereas, the bears are looking for continued concerns about inflation, interest rates and fuel prices.
Jody Osborne
Senior Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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