EmailThe equity market stood its ground yesterday, eking out a small gain on light volume. Transports provided leadership, which is notable given their tight link to economic activity. The Dow Jones Transportation Average rose 1.2% and hit a new all-time high in the process.
Things are looking up again this morning, too, as the S&P futures are trading 1.0% above fair value.
The futures market got a booster shot from a much better-than-expected ADP Employment Change report for June that fit with the notion that the soft patch seen in May has started to firm up again.
ADP estimated that 157,000 jobs were added to private sector payrolls in June. That is well ahead of the 36,000 reported for May and the Briefing.com consensus estimate, which called for an increase of just 60,000.
Small businesses accounted for the bulk of the hiring (+88,000), followed by medium-sized businesses (+59,000) and then large businesses (+10,000). By sector, the services sector (+130,000) led the way while the goods-producing sector added 27,000 positions.
The ADP report is going to force the market to recalibrate its thinking for the government's employment report on Friday, though not by a significant amount considering the Briefing.com consensus estimate for nonfarm private payrolls is currently pegged at 110,000. Still, the ADP number will promote a sense that Friday's number is more likely to carry a positive surprise relative to the current consensus estimate than a negative surprise.
On a related note, initial claims for the week ending July 2 were also better than expected at 418,000 (Briefing.com consensus 425,000). That is down 14,000 from the prior week, although any number above 400,000 for this series is generally regarded as a signal that nonfarm payroll gains won't be strong enough to produce a meaningful drop in the unemployment rate.
Continuing claims for the week ending June 25 declined by 43,000 to 3.681 mln (Briefing.com consensus 3.700 mln).
The takeaway from the claims report is that things could still be better -- a lot better -- in the labor market. Nonetheless, the ADP number has lifted some of the gloom hanging over the market since the May employment report and has taken precedence as an early trading catalyst.
Separately, the Bank of England left its key interest rate unchanged while the ECB raised its key lending rate 25 bps, as expected, to 1.50%.
An underlying theme this morning is that things are not as bad as had been feared. The ADP report is just one example. A successful debt auction in Spain; a string of better-than-expected (and positive) same-store sales results for June from the retailers; and a 3.3% increase in Japanese machine tool orders for May are others.
We can't say for certain how the equity market will finish today, but we are certain the day is going to begin on an upbeat note as perception gets trumped by reality.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is the Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial please email researchsales@briefing.com.
