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Stocks Close Mostly Lower Ahead Of Monthly Jobs Report - U.S. Commentary

With traders reacting negatively to a mixed batch of U.S. economic data, stocks moved mostly lower during trading on Thursday. Caution ahead of Friday's closely watched monthly jobs report also contributed to some risk aversion on Wall Street.

The major averages climbed off their worst levels going into the close but still ended the day firmly in the red. The Dow fell 61.98 points or 0.5 percent to 13,206.59, the Nasdaq dropped 35.55 points or 1.2 percent to 3,024.30 and the S&P 500 slid 10.74 points or 0.8 percent to 1,391.57.

After showing a lack of direction in early trading, stocks came under pressure following the release of a report from the Institute for Supply Management showing an unexpected slowdown in the pace of growth in the service sector in the month of April.

The ISM said its non-manufacturing index dropped to 53.5 in April from 56.0 in March, although a reading above 50 indicates continued growth in the service sector. The drop surprised economists, who had expected the index to come in unchanged.

"Respondents' comments affirm the slowing rate of growth," said Anthony Nieves, chair of the ISM Non-Manufacturing Business Survey Committee. "In addition, they remain concerned about rising fuel costs and the impact on shipping, transportation and petroleum-based product costs."

Traders also reacted negatively to comments from European Central Bank President Mario Draghi, who said that the euro area faces economic uncertainty despite signs of stabilization in the first quarter.

"The economic outlook continues to be subject to downside risks," Draghi said while speaking at a press conference following the ECB's announcement of its decision to leave interest rates unchanged.

Meanwhile, the markets largely shrugged off the release of a Labor Department report showing a bigger than expected drop in initial jobless claims in the week ended April 28th, with traders looking ahead to the release of the monthly jobs report on Friday.

The weekly report showed that jobless claims fell to 365,000 from the previous week's revised figure of 392,000. Economists had expected jobless claims to dip to 378,000 from the 388,000 originally reported for the previous week.

Among individual stocks, Green Mountain Coffee (GMCR) fell sharply after the specialty coffee company reported second quarter earnings in line with estimates but slashed its full year guidance. Shares of Green Mountain Coffee tumbled by 47.8 percent.

Auto giant General Motors (GM) also ended the day in the red despite reporting first quarter adjusted earnings that exceeded analyst estimates. GM said its revenues for the quarter rose 4 percent. A strong performance in North America helped to offset losses in Europe.

Meanwhile, shares of Kensey Nash (KNSY) moved sharply higher on the heels of news that the medical device company agreed to be acquired by Royal DSM for about $360 million. The deal values Kensey Nash at $38.50 per share.

Sector News

Health insurance stocks saw considerable weakness on the day, resulting in a 4 percent drop by the Morgan Stanley Healthcare Payor Index. With the loss, the index ended the day at its lowest closing level in almost four months.

Within the health insurance sector, Health Net (HNT) posted a substantial loss after reporting weaker than expected first quarter results and cutting its full-year guidance. Shares of Health Net plummeted by 24.9 percent to a six-month closing low.

Significant weakness was also visible among gold stocks, as reflected by the 3.9 percent loss posted by the NYSE Arca Gold Bugs Index. The weakness in the gold sector came amid a notable decrease by the price of the precious metal, with gold for June delivery falling $19.20 to $1,634.80 an ounce.

Technology stocks such as semiconductor, electronic storage, internet, and networking stocks also posted steep losses on the day. Most of the other major sectors also moved to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Thursday, although the markets in Japan were closed for a public holiday. Hong Kong's Hang Seng Index fell by 0.3 percent, while Australia's All Ordinaries Index ended the day down by 0.2 percent.

Meanwhile, the major European markets turned mixed over the course of the trading day. While the U.K.'s FTSE 100 Index crept up by 0.2 percent, the French CAC 40 Index edged down by 0.1 percent and the German DAX Index slipped 0.2 percent.

In the bond market, treasuries closed nearly unchanged after seeing early weakness. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day up by less than a basis point at 1.924 percent after reaching a high of 1.956 percent.

Looking Ahead

The Labor Department's monthly jobs report is likely to be the main driver of trading on Friday. Economists currently expect the report to show an increase of about 165,000 jobs in April, while the unemployment rate is expected to remain unchanged at 8.2 percent.

On the earnings front, Kraft (KFT) and AIG (AIG) are among the companies releasing their quarterly results after the close of trading.

by RTT Staff Writer

For comments and feedback: editorial@rttnews.com

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