Market Commentary: Stocks Down Thanks to Lousy Jobs Reports

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Stocks fell this week, driven lower in part by two subpar jobs reports. While economists expected 170,000 jobs for April, ADP reported that only 119,000 jobs were added. The bad news only got worse when the Labor Department, using a different methodology, announced an increase of only 115,000 jobs, substantially below expectations, and the lowest monthly increase since October. The unemployment rate decreased to 8.1%, a three-year low, due to a reduction in the labor force. Gold declined by 1.23%. and ended the week at $1,642 per ounce.

By Matt Freund, Senior Vice President, Investment Portfolio Management

market commentary lousy jobs reports may 2 2012Although employment appears to be on an upswing, the increase in the number of employed Americans, which had spiked to more than 200,000 monthly for the prior three months, has declined to well under 200,000 for the past two months. This has called into question the strength of the current U.S. economic recovery, and led to softness in major world stock markets.

Reacting to the news, the S&P 500 index declined 2.41% on the week to close at 1,369. U.S. Treasury bonds rallied, with the yield on the 10-year rising .06% on the week to close at 1.88%, a level not seen since January. Gold declined 1.47% to close the week at $1,638.36/oz.

Other economic releases this week supporting a slowing in the rate of U.S. growth include the Chicago Purchasing Manager’s Index, declining to 56.2 in April from a prior month reading of 62.2, and the ISM Non-Manufacturing composite, which was 53.5 in April, down from 56.0 the prior month. Note that a reading above 50 indicates an expanding economy.

However, the ISM Manufacturing composite rose to 54.8 in April, up from 53.4 the prior month

Data from Europe indicated the eurozone economic contraction worsened in April, as evidenced by the release of the April PMI Manufacturing composite, which dropped to 45.9 in April from 46.0 in March, and the PMI Services composite, which declined to 46.9 in April from 47.9 in March.

The European Central Bank, following its Thursday meeting, announced it would leave its benchmark interest rate unchanged at 1.0%, and cited “downside risks” to the economy.

U.S. corporate earnings appear to continue to perform well. With approximately 84% of the companies in the S&P 500 index having reported, first quarter earnings are up 5.8% from last year’s levels.

Notable companies that beat earnings estimates this week included:

  • Kraft Foods
  • Time Warner
  • The Allstate Corporation
  • Visa
  • CVS
  • Archer-Daniels-Midland Company

Companies that fell short of expectations were:

  • Prudential Financial
  • Chesapeake Energy Corporation
  • Genworth, and
  • Avon Products
This material is for informational purposes and is not investment advice.

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