Stocks were trading mixed Wednesday as investors digested a weak private-sector employment report ahead of Friday’s official April jobs data. The Dow Jones Industrial Average was down 52 points, or 0.4%, at 13,227. The blue-chip index climbed as high as 13.359.62 in intraday action on Tuesday, its highest level since late 2007. The S&P 500 was sliding 7.2 points, or 0.5%, at 1399.
The Nasdaq was showing some strength though, advancing 4 points, or 0.1%, at 3054.44 after running as low as 3029 earlier in the session.
“People sometimes react emotionally instead of cerebrally [to economic reports],” says Joseph Montero, partner at WeiserMazars. “After the shock value of a report comes out, they sort it out and come back to normal.”
Breadth within the Dow was negative with 21 of the index’s 30 components moving lower. The biggest percentage decliners were Alcoa (AA), Bank of America (BAC), Chevron (CVX), Exxon Mobil (XOM) and JPMorgan Chase (JPM).
Shares of Alcoa shed 2.5% to qualify as the Dow’s biggest loser. Bloomberg reports that a joint venture between the company and Alumina (AWC) will produce 15.5 million metric tons of alumina this year, down 3% from its February forecast and down from a record 15.7 million tons last year because of slow demand.
In the broad market, losers outpaced winners by a 3.1-to-1 ratio on the New York Stock Exchange and were split almost evenly on the Nasdaq.
Stocks kicked off May on a strong note Tuesday, posting smart gains after a much better-than-expected report on U.S. manufacturing activity. The Dow hit its highest level since late 2007 in intraday action and closed with a gain of nearly 70 points.
Before Wednesday’s opening bell though, payroll processor Automatic Data Processing reported a much weaker-than-expected increase of 119,000 workers added by U.S. companies in April on a seasonally adjusted basis, down from a downwardly-revised 201,000 jobs added in March.
Economists surveyed by Thomson Reuters estimated the April ADP number would come in at 170,000.
The light read on employment comes ahead of Friday’s official April nonfarm payrolls report from the Labor Department, adding to investor fears that this report will deliver more of the same after a soft number in March.
“The surprising weakness in this report suggests a downside bias going into Friday’s employment report, and from an accounting perspective it is equivalent to payrolls growth of around 115K, which is well through the current market consensus for a more respectable 160K gain,” says Millan Mulraine, senior U.S. strategist, TD Securities.
Brian Gendreau, market strategist for Cetera Financial Group, thinks the market was overreacting to the ADP report when it declined sharply, promptly after the release.
“The correlation between ADP and payroll is a very, very loose relationship,” he asserts. “There will always be the doubters. There will always be those who will jump on any piece of negative news as a reason for taking some money off the table.”
The economy added only 120,000 jobs in March, about half the gains posted in the previous three months, disappointing investors who were hoping for continued signs of a strengthening economy.
In other economic news, the Commerce Department reported that factory orders fell 1.5% in March, which is close to expectations for a fall of 1.6% according to economists surveyed byThomson Reuters. February’s figure was downwardly-revised to a 1.1% increase.
In Europe, business survey provider Markit Economics said that the eurozone manufacturing downturn took a further turn for the worse in April.
The seasonally adjusted Markit Eurozone Manufacturing purchasing managers’ index fell to a near three-year low of 45.9, down from 47.7 in March and below the earlier flash estimate of 46. The headline PMI has signaled contraction in each of the past nine months.
Hard hit countries included Germany, the eurozone’s biggest economy, and peripheral countries Italy and Spain. Spain’s manufacturing PMI number was at a 34-month low, Italy’s was at a six-month low, and Germany’s was at a 33-monthlow.
Insurance costs for Spanish and Italian debt increased after the report on weak eurozone manufacturing data. Five-year credit default swaps on Spain widened by five basis points at 478 basis points and credit default swaps of Italy widened by six basis points at 446.
“Europe has been an albatross for the market for the past few years,” says Gendreau. “Europe is going to weigh on the market for a while but it won’t produce the volatility, barring a major event.”
Also on Wednesday, the Nuremberg-based Federal Labor Agency reported an increase in German unemployment thanks to the sovereign debt crisis’ stifling impact on economic growth, with the number of unemployed people rising by a seasonally adjusted 19,000 to 2.87 million in April.
London’s FTSE slipped 0.9% and the DAX in Germany settled down 0.8%. The Hang Seng Index in Hong Kong ended up 1% as it tried catching up to Tuesday’s U.S. rally after a break during the May public holidays. Japan’s Nikkei Average finished up 0.3%.
In corporate news, MasterCard (MA) on Wednesday reported first-quarter earnings of $682 million, or $5.36 a share, ahead of the average estimate of analysts polled by Thomson Reuters for a profit of $5.30 a share. Shares were down 0.4%.
MasterCard competitor Vis a(V) is slated to report its fiscal second-quarter results after Wednesday’s closing bell. The average estimate of analysts polled by Thomson Reuters is for earnings of $1.51 a share in the March-ended period on revenue of $2.48 billion. The stock was down 1.4% ahead of the report.
Overall, earnings season continues to impress. According to the latest Thomson Reuters data, 70%, or 350, of the companies in the S&P 500 have already reported and 70% of those have topped Wall Street’s consensus view with 9.7% meeting the average analysts’ estimate and 20.3% coming in below expectations. Since 1994, the average quarter has seen 62% of companies beat consensus.
Comcast (CMCSA), the cable giant, reported first-quarter earnings Wednesday of $1.2 billion, or 45 cents a share, up from year-earlier earnings of $943 million, or 34 cents. Analysts expected Comcast to report earnings of 42 cents a share. The stock was falling nearly 2%.
Media company Time Warner (TWX) reported Wednesday first-quarter adjusted earnings of 67 cents a share. Analysts, on average, anticipated earnings of 64 cents a share in the first quarter. Time Warner also reaffirmed its full-year 2012 guidance on Wednesday of low-double-digit growth off its $2.89 adjusted earnings per share base. Shares were down nearly 2%.
UBS (UBS), Switzerland’s biggest bank, said first-quarter profit fell 54%, largely due to a big accounting charge on its debt and difficult market conditions. Revenue fell 22% to 6.53 billion francs. But its core wealth management businesses achieved10.9 billion Swiss francs in net new funds, blowing past the 8.8 billion francs targeted by Wall Street. Shares were rising 1.1%.