Disappointing Employment Data Sends Stocks Sharply Lower - U.S. Commentary

(RTTNews) - Investors are selling stocks in morning trading on Thursday as they look over a deluge of economic data. While most of the data has shown sluggish results, unexpected growth in the service sector has helped the markets pare a portion of their losses.

Before the markets opened, a slew of data related to the labor market was released, with a pair of the reports raising some concerns about the strength of the August employment report due to be released by the Department of Labor on Friday.

While a report from Automatic Data Processing, Inc. (ADP) showed a slightly bigger than expected decrease in private sector employment in the month of August, the Labor Department’s weekly employment report showed an unexpected increase in jobless claims.

The ADP report showed that non-farm private sector employment fell by 33,000 jobs in August following a revised increase of 1,000 jobs in July. Economists had expected employment to fall by 30,000 jobs compared to the increase of 9,000 jobs originally reported for the previous month.

Separately, the Labor Department said that jobless claims in the week ended August 30th rose to 444,000 from the previous week’s revised figure of 429,000. Economists had expected jobless claims to fall to 420,000 from the 425,000 from the originally reported for the previous week.

The Labor Department also said that continuing claims in the week ended August 23rd rose to 3.435 million from the preceding week’s revised level of 3.429 million.

Meanwhile, activity in the service experienced unexpected growth in the month of August, according to a report released by the Institute for Supply Management on Thursday, although the report also showed continued weakness in employment.

The ISM said its index of activity in the sector rose to 50.6 in August from 49.5 in July, with a reading above 50 indicating growth in the sector. Economists had been expecting the index to come in unchanged from the previous month.

Later in the day, Dallas Federal Reserve Bank President Richard Fisher will be in Houston, Texas to speak about the challenges in the U.S. economy. Fisher is expected to speak at 1:40 pm ET. At 2:00 pm ET, San Francisco Federal Reserve Bank President Janet Yellen will be speaking about the economic outlook in Salt Lake City, Utah.

On the corporate front, an overwhelming majority of Boeing’s (BA) largest machinists union voted to reject a three-year contract offer, saying the renewed contract did not meet expectations.

In a statement, Boeing said that it was “disappointed” with the rejection of its contract offer. However, at the urging of federal mediators, Boeing has agreed to return to the negotiating table. Union members also agreed to talks and have postponed their impending strike by another 48 hours.

In recent trading, the major averages have moved back to the downside after paring a portion of their losses. The Dow is currently down 131.73 at 11,401.15, the Nasdaq is down 26.94 at 2,306.79 and the S&P 500 is down 11.95 at 1,263.03.

Sector News

Networking stocks are turning in some of the worst performances, led lower by Ciena (CIEN). The Amex Networking Index is falling 4.3 percent, adding to declines seen in the previous three sessions. Earlier in the day, the index set a monthly intraday low.

Ciena is plunging 22.7 percent after the company reported third quarter net income that came in line with analysts’ expectations. Nonetheless, investors were unimpressed with the network specialists’ fourth quarter revenue forecast. Ciena expects fourth-quarter revenue in a range of $190 to $210 million compared to analyst estimates of $263.02 million.

Hovnanian Enterprises (HOV) is leading the housing sector lower after the homebuilder reported a third quarter loss that was wider than analysts were expecting. Shares of Hovnanian are down 10.3 percent, contributing to a 2.7 percent decline by the Philadelphia Housing Index.

Disk drive stocks are sharply lower as well, with the Amex Disk Drive Index posting a 2.5 percent loss. Adding to a decline seen in the previous session, the index set a monthly intraday low earlier in the day.

Retail stocks are also seeing significant selling pressure, as most retailers have reported sluggish same store sales for the month of August. The S&P Retail Index is down 1.6 percent, pulling back from a three month closing high set on Wednesday.

Nonetheless, one bright spot in the retail sector is Wal-Mart Stores (WMT), which is currently up 1 percent. The discount retailer posted better than expected same store sales results, as consumers looked for savings.

Other stocks that are showing weakness include steel, internet and telecommunications stocks. The Amex Steel Index is down 3.2 percent, the Amex Internet Index is down 2.1 percent and the Amex Telecommunications Index is down 2 percent.

Stocks Driven By Analysts Comments

Among individual stocks, Legg Mason (LM) is seeing significant selling pressure after being downgraded by an analyst at Credit Suisse. The analyst downgraded the stock to an Underperform rating from a Neutral rating, citing valuation.

Shares of the financial institution are currently trading lower by 10.2 percent, ending a recent uptrend. The stock had trended higher for the past week, setting a two-month closing high on Wednesday.

Marvell Technology Group (MRVL) is also posting a substantial loss. A Deutsche Securities analyst downgraded Marvell to a Hold rating from a Buy rating, while a Credit Suisse analyst initiated coverage on the stock with a Neutral rating. Shares of the semiconductor company are currently down 5.7 percent after setting a four-month intraday low.

On the other hand, Pharmaceutical Product Development (PPDI) was upgraded to a Buy rating by an analyst at Goldman Sachs, sending the stock sharply higher. The analysts based the upgrade on valuation, while also increasing the stock’s price target to $49 from $44. The stock is up 5.3 percent, setting a two-month intraday high.

Other Markets

Stock markets across the Asia-Pacific region closed lower on Thursday after Wall Street finished mixed overnight. Japan’s Nikkei 225 index traded below the unchanged line throughout the session before closing down 1 percent on worries about an economic slowdown and uncertainty about the country’s political outlook.

The major European markets are trading lower on Thursday. While the German DAX Index and the French CAC 40 Index falling 1.8 percent and 1.6 percent, respectively, the U.K.’s FTSE 100 Index is seeing a decline of 0.6 percent.

At its September meeting, the Bank of England kept its benchmark interest rate unchanged at 5 percent. The decision was in-line with expectations, as economists expected the central bank to pause to contain inflation despite slowing growth.

The ECB also held interest rates steady at 4.25 percent at its September meeting after maintaining rates at that level at the previous meeting. The last revision in rates was in July, when the central bank raised rates by 25 basis points.

Meanwhile, treasuries are showing moderate strength in morning trading, as investors look to the safety of government backed bonds. Subsequently, the yield on the ten-year note is currently down 1.5 basis points at 3.682 percent.

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