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Challenger layoffs fall 40%

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Some of this morning's economic data from the ISM non- manufacturing number and the Challenger, Gray & Christmas labor report has had stocks trading rather volatile and mixed this morning.

Stocks jumped higher from an early-morning round of profit taking after the ISM non-manufacturing number came in at 58.7%, which was significantly higher than consensus of 51.2%, and much stronger than January's reading of 49.6%.

Just after the ISM data was reported, the Challenger report showed that planned job cuts by corporations fell nearly 40% in February to the lowest level since June. February's planned layoffs totaled 128,115, down 39.8% from January's 212,704, hinting that the job market is stabilizing.

"Even thought February job cuts showed significant decline, there is no reason to think the job market is rounding," said John Challenger, CEO of the Challenger, Gray & Christmas. "The fact that cuts remained above 100,000 is a strong indicator that employers are still focused on contraction."

That comment then has seen the broader market averages see some selling as the market digests the numbers and tries to ascertain if stocks may gotten a little ahead of themselves in the past two sessions.

The Challenger survey peaked at 248,332 in September and 242,192 in October.

In February, telecommunications companies cut the most jobs for the seventh time in the last nine months, announcing 35,937 layoffs, bringing the year-to-date total to 60,691. The auto industry announced 59,353 cuts so far in 2002. The government and non-profit sector said it would cut 41,108 jobs.

Challenger's survey tracks corporate announcements, which can be accomplished by layoffs, firings, retirements or voluntary departures. The actual layoffs may take months before they actually occur and the survey does not account for potential hiring.

By contrast, government figures track actual layoffs and hirings. On Thursday, the Labor Department will report weekly claims for state unemployment benefits. Then on Friday, the Labor Department will report on net hiring for February. Economists are expecting a small addition to payrolls of about 12,000, which would be the first gains since July.

Mixed market on profit taking

The major market averages have been mixed for the bulk of the session, with a brief surge into positive territory immediately following the ISM data. The NASDAQ Composite (COMPX) is holding onto fractional gains, but hovers just above the unchanged level.

Sector strength in the tech-heavy NASDAQ is semiconductor stocks as depicted by the Semiconductor Index (SOX.X) 606.27 +0.87% and the Disk Drive Index (DDX.X) 99.18 +0.95%.

Weakness is found among the deeper cyclicals with the Forest Paper Products Index (FPP.X) 369 -1.32%, Dow Transports (TRAN) 3,011 -1.26% and the broader Cyclical Index (CYC.X) 588 -1.29 seeing some selling. The more consumer sensitive Retail Index (RLX.X) 934 -2.69% is also under pressure after some downgrades in the sector. Dow component and home improvement retailer Home Depot (NYSE:HD) $47.49 -4.82% is trading lower after this morning's downgrade by Goldman Sachs.

Jeff Bailey
Senior Market Technician
Option Investor

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