Fundamentals

US Stocks Struggle As Service Businesses Lag

U.S. Session Key Developments

•    Service Businesses Report Disappoints Investors
•    Report Shows US Shed Least Private Sector Jobs In Two Years
•    Dollar Appreciates For First Time This Week

A weak service industries report sent most U.S. stocks into the red today.  The decline comes after the past two days saw the S&P 500 Index make its biggest rally since October.  The report in question comes from the Institute for Supply Management, which announced today that the Non-Manufacturing Composite rose to 50.5 in December.  Despite moving into growth territory, the advance was not as strong as had been expected.  Earlier this week the ISM announced that manufacturing businesses had expanded at the fastest pace since 2004.  That report ignited the stock rally over the past two days.  Still service businesses make up ninety percent of the world’s largest economy and a lagging service sector could be very bad for US growth.  On the jobs front, a report showed that the US only shed 22,000 jobs in January.  The report, which only looks at private payrolls and doesn’t take into account government hiring, should give investors some guidance as to what to expect in the Non-Farm Payrolls report this Friday.  As it stands right now, analysts are expecting that payrolls actually rose by 15,000 employees in January.  That would be only the second time in 25 months that the economy added more jobs than it lost.  Today also marked the first time this week that commodities fell and the dollar gained.  The dollar index gained 0.5 percent today and crude and gold were 0.23 and 0.72 percent lower respectively.  This comes as 10 year treasury yields climbed to 3.71 percent, the highest since January 19^th.  In central bank news, Ben Bernanke vowed to increase transparency and maintain independence for the Fed.  Across the pond, the Bank of England and the European Central Bank announce rate decisions tomorrow, which should create some interesting price action in their currencies tomorrow.                                                     

DJIA 30                     10,270.55                    -26.30                          -0.26%
The Dow Jones Industrial Average, led by Health Care, closed lower for the first time this week.  Pfizer Inc. was the worst performing component after the company announced earnings that trailed the average analyst estimate by 3.2 percent, on higher costs from the purchase of rival Wyeth.  The company’s stock was down 3.2 percent at the close.

S&P 500                     1,097.28                       -6.04                             -0.55%
The broad-base S&P 500 was the worst performer of the three major indices, with Technology the only sector that finished the day higher.  Financials were lower by 1.41 percent after a report showed that the service sector expanded slower than expected and a disappointing result from MetLife Inc.  The company reported that its book value at yearend missed a December forecast, sparking concern about additional write-offs in the financial sector.

NASDAQ                    2190.92                        +0.85                            +0.04%
The tech heavy Nasdaq Composite Index was the lone gainer of the three major US indices after tech stocks advanced 0.52 percent.  Tech giants Apple, Google, and Microsoft led the advance as their shares were higher by 1.72, 1.83, and 0.53 percent respectively.  Yahoo shares were higher 1.91 percent after the company announced plans to sell its HotJobs website to Monster for $225 million cash.  After the market closed, Cisco Systems Inc. announced second quarter earnings that exceeded analysts’ average estimate by 14 percent.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com