Beware dear friends as there exists a decent chance of a sharp stock market sell-off today. The employment report was about as bad as it gets (against expectations barometer), and with the debt ceiling overhanging the weekend, and Standard & Poor's poised to downgrade America, who would want to go into a weekend holding stocks? The answer is: Not the smart money.
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Relative tickers: NYSE: JPM, NYSE: WFC, NYSE: BAC, NYSE: UBS, NYSE: NWS, Nasdaq: NWSA, Nasdaq: PSMT, NYSE: GBX, Nasdaq: CRDC, Nasdaq: STEMD, Nasdaq: LOCM, NYSE: NED, Nasdaq: IROQ, Nasdaq: SPU, Nasdaq: CSKI, Nasdaq: ZNWAW, Nasdaq: GENE, Nasdaq: MGYR, Nasdaq: DCTH, Nasdaq: COMV, Nasdaq: MSHL, NYSEArca: RTSA, Nasdaq: TBET, Nasdaq: FPFC, Nasdaq: FFKT, Nasdaq: CYTXW, Nasdaq: BBXT, Nasdaq: BPAX, NYSEArca: ROSA, NYSE: GU, NYSE: ARJ, Nasdaq: XXIA, NYSE: ARX, Nasdaq: SMCG, Nasdaq: SAPX, Nasdaq: CRMBW, AMEX: BMJ, Nasdaq: PSOF, Nasdaq: BORN, Nasdaq: SYMX, NYSE: ALV, Nasdaq: SSFN, NYSE: TRU, Nasdaq: MFNC, NYSE: MEG, Nasdaq: CPSL, NYSE: TRW, Nasdaq: CNET, NYSE: SCR, AMEX: CCF, Nasdaq: FUEL, NYSE: HIL, Nasdaq: BONA.
Sharp Stock Market Sell-Off May Close Out Day
June Jobs Report
Like a bad moon rising, the Employment Situation Report for June produced an ominous warning for traders in the premarket Friday. After yesterday’s ADP Private Employment Report offered hope with its estimate for 157K in private nonfarm payroll growth, the Department of Labor pulled the rug right out from under our feet today. The news dominated the business wire, but we've got it all covered for you here below.
The DOL reported that June’s unemployment rate worsened to 9.2%, up from 9.1% in May. Economists expected the rate to stick at 9.1% in what was clearly a poor period. Many found worse news in the Nonfarm Payrolls number, which indicated just 18K jobs were created on net in June. Again economists were caught off guard with their consensus estimate for a 105K increase in jobs. Private Nonfarm Payrolls were reported up just 57K, against economists’ views for 125K on average (and ADP’s 157K estimate).
Thus, instead of improving from a weak May data point, Nonfarm Payrolls missed in June. May’s weak figure was even revised lower to +25K, from +54K. Average Hourly Earnings also missed forecasts for an increase of 0.2%, remaining unchanged in June. The average workweek likewise declined to 34.3 hours from 34.4 hours. It was bad news all around folks, the perfect poison for an already stressed out situation.
Monster Employment Index (MEI)
Monster World Wide (NYSE: MWW) produces a monthly measure of online job demand. The MEI eased a bit in May, to 143, but it surprisingly recovered in June to a reading of 146. This carries absolutely no weight today, this week, this month or ever. It has been completely muted by the Employment Situation Report. So, we’re going to focus our attention as well.
Wholesale Trade Report
Wholesale Trade data came due at 10:00 AM this morning. Inventories were unfortunately up 1.8%, as sales waned, leaving wholesalers in an unfortunate situation that we expect will also be seen across retail. Wholesalers’ sales were down 0.2% in May against April’s upward revision. The Inventory-to-Sales ratio deteriorated (obviously) to 1.16, but it was only a bit worse than May of 2010 (1.15). Economists had forecast May’s inventories to rise by just 0.7%.
Since economists’ forecasts will need adjustment lower, I expect a situation exists now that has not been worked into lower level market strategists’ and stock analysts’ forecasts as well. If this is more than a temporary issue and if it transcends across American business, this means EPS adjustments to the downside and price target reductions are likely generally speaking, especially for companies without much foreign exposure.
Consumer Credit Report
At 3:00 PM ET, look for the latest Consumer Credit report, this time for May. Economists are looking for a credit expansion of just $4.0 billion, against the April increase of $6.3 billion.
German exports were reported higher than economists had forecast for May, a sign that Europe’s most important economy is still somewhat immune to the chaos on Europe’s periphery. That said, a rumor that Italy’s Economy Minister Guilio Tremonti might be about to resign sent Italian bond yields higher and the euro dropping. The minister is under political pressure after pushing through a somewhat light austerity program for Italy that wasn’t popular amongst Italians. Political will is not strong in Italy, and Prime Minister Berlusconi even called Tremonti out as not being a “team player.” However, the ECB Chief in waiting, Italian Mario Draghi said he expects Italian banks to pass the stress test coming on July 15, and that news somewhat settled markets. The euro is also finding help from the American bad news today, with the dollar despised as a result.
Corporate News Wire
News Corp. (NYSE: NWS, Nasdaq: NWSA) is facing heavy scrutiny in the United Kingdom, where Rupert Murdoch is now closing down the scandalous gossip paper, News of the World. While Murdoch says he’s satisfied that his Editor-in-Chief at the paper had no knowledge of cell phone hacking, British Premier David Cameron said he would have accepted her alleged resignation offer. There’s some pressure on News Corp. today, down 4%, because of its many business interests in the United Kingdom, where it may now face higher scrutiny. My opinion here is that Murdoch’s other endeavors in the nation should not be hampered by this news, but investors are hedging their risk today.
A unit of J.P. Morgan (NYSE: JPM) today settled a suit involving civil fraud charges about its alleged rigging of bidding competitions to win business from cities and countries. JPM paid out $228 million to close the case. Bank of America (NYSE: BAC) and UBS have agreed to similar settlements, and JPM has agreed to cooperate with a Justice Department investigation.
Wells Fargo (NYSE: WFC) settled its own Mortgage Backed Securities (MBS) lawsuit today for $125 million, paying a slew of pension funds that lost capital in the financial crisis.
The corporate wire highlights EPS from PriceSmart (Nasdaq: PSMT) and Greenbrier Cos. (NYSE: GBX).
The Day’s Most Active Stocks List:
On the Upside: Cardica (Nasdaq: CRDC), StemCells (Nasdaq: STEMD), Local.com (Nasdaq: LOCM), Noah Education (NYSE: NED), IF Bancorp (Nasdaq: IROQ), SkyPeople Fruit Juice (Nasdaq: SPU), China Sky One Medical (Nasdaq: CSKI), Zion Oil & Gas (Nasdaq: ZNWAW), Genetic Technologies (Nasdaq: GENE), Magyar Bancorp (Nasdaq: MGYR), Delcath Systems (Nasdaq: DCTH), Comverge (Nasdaq: COMV), Marshall Edwards (Nasdaq: MSHL), iPath Short Extended Russell 20 (NYSEArca: RTSA), Tibet Pharmaceuticals (Nasdaq: TBET), First Place Financial (Nasdaq: FPFC), Farmers Capital Bank (Nasdaq: FFKT), Cytori Therapeutics (Nasdaq: CYTXW), BankAtlantic Bancorp (Nasdaq: BBXT), Biosante Pharmaceuticals (Nasdaq: BPAX), iPath Short Extended Russell 10 (NYSEArca: ROSA), Gushan Environmental Energy (NYSE: GU) and Arch Chemicals (NYSE: ARJ).
On the Downside: Ixia (Nasdaq: XXIA), Aeroflex (NYSE: ARX), Millenium India Acquisition (Nasdaq: SMCG), Seven Arts Pictures (Nasdaq: SAPX), 57th Street General Acquisition (Nasdaq: CRMBW), Birks & Mayors (AMEX: BMJ), Pansoft (Nasdaq: PSOF), China New Borun (Nasdaq: BORN), Synthesis Energy Systems (Nasdaq: SYMX), Autoliv (NYSE: ALV), Stewardship Financial (Nasdaq: SSFN), Torch Energy Royalty (NYSE: TRU), Mackinac Financial (Nasdaq: MFNC), Media General (NYSE: MEG), China Precision Steel (Nasdaq: CPSL), TRW Automotive (NYSE: TRW), ChinaNet Online (Nasdaq: CNET), Simcere Pharmaceuticals (NYSE: SCR), Chase Corp. (AMEX: CCF), SMF Energy (Nasdaq: FUEL), Hill International (NYSE: HIL) and Bona Film Group (Nasdaq: BONA).
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