Yesterday, Wednesday Jun 1st, a slew of negative economic data was released that caused the Dow to drop more than 275 points. This has many bullish investors concerned that the run that the stock market has experienced for the past two years is over.
The first number that was released was the ADP Employer Services number, which reported a much lower-than-expected growth rate. This report showed that private employers in the US only added 38,000 jobs last month, instead of the 175,000 expected. This is the lowest ADP number since September 2010.
As a result, many Wall Street banks slashed forecasts for the important US payrolls report that will be released tomorrow, Friday June 3rd, at 8:30am. Goldman Sachs cut their forecast for Friday’s government employment report to show 100,000 nonfarm jobs added in May, down from 150,000 previously. Deutsche Bank cut their forecast to 160,000 in May, down from a prior estimate of 225,000. Bank of America Merrill Lynch sliced its forecast to 125,000 nonfarm payrolls for May from 165,000.
Also released was the Institute for Supply Management’s survey of factory supply managers. It showed growth in the US manufacturing sector slowed sharply in May, falling to 53.5% from 60.4% in April, the lowest reading in 13 months. This marks the third straight decline and the biggest one-month drop in the survey since 1984. Though any reading over 50% indicates that more manufacturers are expanding instead of shrinking, the consensus expectation number that had been expected a was 57.1%.
Adding to the mix of negative news was Moody’s downgrade of Greece’s local and foreign currency bond ratings to Caa1 from B1, and they assigned a negative outlook to the ratings. As I have written about before (http://www.thestockenthusiast.com/opinion/european-debt-issues-and-how-they-affect-you/), what happens in Greece concerning their sovereign debt issues could have a dramatic effect on global markets.
Without a doubt, the markets and the economy have recently hit a soft patch. Growth seems to have stalled in the past month and its due to a mix of a weak labor market, slower growth in manufacturing, weakening consumer confidence, and a real estate market that’s double dipping.
What do you think? Are you selling your stock? Are you shorting the markets? Or do you think this is just a temporary retracement and an opportunity to buy equities? Email me at firstname.lastname@example.org