Wednesday, February 5, 2014

Stocks Flat to Lower After Disappointing ADP Employment Report

Stocks could not extend Tuesday's relief rally after hearing the ADP January Employment Report, which assumed US private sector job growth of 175,000, when estimates were for 185,000.

Note the use of the word "assumes" in the foregoing paragraph, because ADP does not rely upon hard data, but extrapolates and models from sampling, thus their estimates are often far afield from reality, as displayed clearly last month, when the private firm called 238,000 job growth (revised down to 227,000) and two days later, the BLS offered 74,000 in their monthly non-farm payroll data series.

Who's right and who's wrong is not the question. The question is who can be trusted, and clearly, with the goal-sought nature of economic data reports in the "Fed era" of economics in which we currently reside, the answer is, nobody.

Anecdotal and real-life experience may be more instructive than government or private data releases at this juncture, and, by most accounts, in most areas of the United States, there are few hirings and the jobs offered are either part-time or menial or both. The job market is definitely not what one could in any way, shape or form, call robust.

Stocks took a bumpy ride - mostly on the downside - to get to generally unchanged on the day. Being that the ADP numbers have long been deemed untrustworthy, most speculators are attempting to hang in the market until Friday, when the BLS releases January jobs numbers, which, if the weather is any guide, figure to be uninspiring.

The good news came in the form of gold and silver gains on the day, though, as has been noted, cannot be met with much enthusiasm, since the precious metals have been largely range-bound for the past three months and show no signs of breaking out. Still, those investing in hard assets have to be sleeping better than their counterparts in equities, since they can at least claim some degree of stability during the past six weeks of general market declines.

Reporting after the bell was Twitter (TWTR), showing a gain of two cents (ex-items) for the fourth quarter, against estimates of a two cent loss. User growth was around eight million for the quarter, below estimates, which sent the stock down 10-15% in after-hours trading. Regarding Twitter's valuation of 57-58 dollars per share, assuming they make ten cents in all of 2014, puts their price-earnings ration somewhere in the ionosphere, around 570-580. They don't call it speculation for nothing, folks.

Despite the small losses in the headline numbers, internals were rather nasty. The A-D line was nearly 2-1 in favor of losers and new 52-week lows were triple the number of new highs, an indicator which is trending very negatively.

Bonds sold off, sending the 10-year note to 2.67% yield, and the 3-month and 6-month bills matched up at at yield of 0.06, not an encouraging trend either, as, if they invert, history tells us conclusively that recessions follow, and a recession is not anything the economy can withstand right now.

DOW 15,440.23, -5.01 (-0.03%)
NASDAQ 4,011.55, -19.97 (-0.50%)
S&P 1,751.64, -3.56 (-0.20%)
10-Yr Note 100.67, -0.33 (-0.33%) Yield: 2.67
NYSE Volume 3.97 Bil
Combined NYSE & NASDAQ Advance - Decline: 2065-3617
Combined NYSE & NASDAQ New highs - New lows: 51-154
WTI crude oil: 97.38, +0.19
Gold: 1,256.90, +5.70
Silver: 19.80, +0.383
Corn: 443.25, +1.50

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