Intraday Market Update
Equities are drifting higher once again as we head into a well deserved three day holiday weekend in observance of Labor Day. US markets will be closed on Monday which is keeping traders on their toes after mixed economic data was released this morning. In the pre-market a better than expected employment report caused the S&P 500 to gap +10 points higher at the open, reaching an early morning high of 1,105. However, the enthusiasm was short lived after the ISM Non-Manufacturing Index missed expectations and showed disappointing growth in the service sector. All of the major indexes sold off on the news but have recovered nicely and are posting solid +1% gains or better. Treasuries prices have sold off causing yields to rise sharply, although prices are off their worst levels. Crude oil is not participating in the rally as it is off by more almost -1.5%, while gold has lost about -$4 but is more than +$10 off of its lows. Overseas, the Asia-Pacific region traded modestly higher with the exception of the Shanghai Index which was flat, while European markets extended their week long rally as most gained +1%.
Overall non-farm payrolls fell for third straight month in August but there was growth in the private sector. The headline number slipped to -54,000 in August which was better than estimates calling for a -90,000 decline. Excluding government hiring, private sector payrolls increased by +67,000 compared to estimates calling for a gain of +40,000 00. June and July's private payrolls were revised higher making the summer seem not so bad. July was revised from an initially reported +71,000 gain to a +107,000 gain. However, this indicates that today's private sector payroll growth was at a slower pace than expected.
The overall unemployment rate rose to 9.6% from 9.5% the previous month which was in line with estimates. Average hourly earnings improved to +0.3% from +0.2% in July. The August number topped the market estimate for a +0.1% gain. The average workweek for all workers was unchanged at 34.2 hours in July. Today's report is definitely a win for the bulls and shows the private sector is probably holding up better than expected, although the slow growth in jobs will continue to be a drag on the economy if it doesn't change.
In not so good news about the economy, the ISM Non-Manufacturing Index shows a broad and deeper than expected slowing in service sector. The headline number of 51.5 is down -3 points which is the worst reading since January. New orders came in at 52.4 and are down more than 4 points in August, which is the slowest m/m growth rate in 2010. Employment is now in contraction at 48.2 which is almost a -3 point decline and also the worst reading since January, although government workers are included in these employment numbers. The bottom line is the economic reports continue to be mixed showing the economy remains in a tough spot.
In equities, Take-Two Interactive (TTWO) is up +10% after crushing Q3 earnings, reporting a 28 cent profit compared to estimates calling for a -18 cent loss. The company also improved its 2010 guidance. Campbell's Soup (CPB) is off more than -3% after the company beat earnings estimates in their Q4 report, but unfortunately revenues declined. The company said US beverage sales jumped +12% y/y, but US soup sales decreased -5%. CPB said it expects fiscal 2011 sales and earnings growth to be slightly below the company's long-term growth targets, citing the current challenging economic and consumer conditions.
In M&A news, Eldorado Gold (EGO) and Goldcorp (GG) are pursuing junior gold miner Andean Resources (ANDPF) whose principal asset is the Cerro Negro gold project in Argentina. EGO first offered $6.36 per share for Andean and then GG offered $6.50 per share. ANDPF has gained +68% this week.
And last but not least, all of us at Option Investor wish you a safe, enjoyable, and well deserved Labor Day weekend. And we look forward to catching up with you tomorrow and on Tuesday. Be safe!
Core Sector List:
Overall reading: 20 sectors advancing, 0 sectors declining
Strongest Sectors: Broker Dealers, Home Construction, Banks, Semi's
Weakest Sectors: NONE
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