Stocks tumbled for a second consecutive day after an ADP jobs report for February that missed expectations, and a dump of new anecdotal information from the Federal Reserve.
First, the scoreboard:
- Dow: 18,096.83 -106.54 (-0.59%)
- S&P 500: 2,098.55 -9.23 (-0.44%)
- Nasdaq: 4,967.14 -12.76 (-0.26%)
And now, for the top stories on Wednesday:
- The ADP jobs report showed that private payrolls grew by 212,000 in February, fewer than the expectation of 220,000. The more notable news was that January data saw a massive upward revision to 250,000 from 213,000 previously reported. Mark Zandi, chief economist at Moody’s Analytics, wrote: “Job growth is strong, but slowing from the torrid pace of recent months,” adding that at this pace, the economy will return to full employment by mid-2016. Pantheon Macroeconomics’ Ian Shepherdson had a different take, writing that just because the ADP calls itself a “research institute” doesn’t make its jobs data a “valid leading indicator.”
- In other economic data, the February PMI services data from Markit came in at 57.1, meeting expectations. Markit’s Chris Williamson wrote: “Business picked up especially towards the end of the month, when the impact of bad weather on the East Coast and port delays on the West Coast began to clear, which suggests this may be a temporary upturn.” The ISM non-manufacturing index beat expectations at 56.9, versus 56.5 forecast.
- The Federal Reserve published its latest Beige Book of anecdotes on the economy from its 12 business districts. It showed that wage pressure is still moderate and limited to highly skilled jobs. Home sales were mixed, banking conditions generally improved, while agricultural conditions generally worsened. On the impact of the oil crash, several districts corroborated the tumble in rig counts and capital expenditure, and job losses in the energy sector. Others noted that the West Coast ports strike impacted business activity, possibly explaining why the February ISM Manufacturing Index was weak. But the picture was different for winter gear retailers who have benefitted from the cold weather.
- The Fed also released transcripts from its 2009 meetings on Wednesday. Back then, Fed chair Janet Yellen was president of the San Francisco Fed, and she addressed the sceptics that thought quantitative easing would spike inflation. “There is growing concern that the Fed is printing money with abandon to stimulate the economy, and the combination of trillion dollar deficits and trillions of dollars of money creation can have only one outcome in the long run, which is high inflation that debases the currency,” she said. We now know that the Fed haters were wrong, as inflation has run below the Fed’s 2% target for most of the post-recession period.
- Abercrombie & Fitch shares collapsed after the retailers announced ugly earnings. Sales fell 14% in the quarter ending January 31, driven by a 10% drop in US same-store sales. Revenues also fell to $US80.8 million from $US14.3 million year-over-year. Shares fell up to 14%. Teenagers are spending less on apparel, hurting retailers geared towards that demographic.
- Shares of Lumber Liquidators also tanked after Senator Bill Nelson (D-Florida) called for test on the company’s flooring. A “60 Minutes” reports on Sunday showed apparent health and safety violations at its manufacturing plants in China. Senator Nelson asked the heads of the Consumer Product Safety Commission (CPSC), the Centres for Disease Control and Prevention (CDC), and the Federal Trade Commission (FTC) to test the flooring. Shares fell nearly 12%.
- The US is running out of places to store all the oil it’s drilling. “If this keeps up, storage tanks could approach their operational limits, known in the industry as “tank tops,” by mid-April and send the price of crude — and probably gasoline, too — plummeting,” the Associated Press reported. Data released by the Energy Information Administration Wednesday showed that crude oil inventories rose by 10.3 million barrels last week, the highest levels for this time of year in at least 80 years.
- Here comes the bear market in bonds: That’s according to Credit Suisse research. The firm (@csresearch) made its case in a series of tweets with the hashtag #BondBearMarket, writing that fair value for the US 10-year Treasury note was 2.75%, about 75 basis points above where that bond is trading. It also noted that 98% of the decline in bond yields since last spring was driven by declining inflation expectations — and expectations have ticked higher.