Stock index focus turns to earnings after jobs rout

Earnings Season Kicks Off!

FRIDAY'S MARKET WRAP-UP

Market Snapshot for July 9, 2012 (8:25 am ET):
Closing Prices: DOW 12,657.20 (-62.29, -0.49%), S&P 500 1,343.80 (-9.42, -0.7%), NASDAQ 2,859.81 (-12.85, -0.45%), Nikkei 225 10,137.73 (+66.59, +0.66%), DAX 7,402.73 (-68.71, -0.92%), FTSE 5,990.58 (-63.97, -1.06%)
OIL 96.20, GOLD 1,541.60, SILVER 36.536
EURO 1.4265, YEN 80.62, BRITISH POUND 1.6057, U.S. DOLLAR INDEX 75.515

June's Employment Data Catches Bulls Off Guard

The market was on shaky ground heading into Friday's session. The previous week gave the bulls the strongest single week gain seen in about two years and set the indices up for a slowdown this past week. The pace of the buying did indeed slow, but decent data throughout the week limited concern as the indices tested price resistance from the year-to-date highs back at the beginning of May.

June's ADP Employment Report, which came out Thursday morning, offered bulls a false sense of comfort, despite it being rather well-known that the data is not always in line with the government's monthly report. According to the ADP report, private sector payrolls were up 157,000 in June, which was substantially higher than the 60,000 increase that had been anticipated. Additionally, the previous week's initial jobless claims slipped from 432,000 to 418,000. Analysts were expecting a number closer to 425,000.

Dow Jones Industrial Average (Figure 1)


Despite the stronger-than-anticipated data on Thursday, however, the index futures were starting to wound off at highs even before Friday's numbers were due out. Slightly higher highs in the early-morning hours created a bull trap with selling that was met by a more gradual rally back to higher heading into the data. This created the perfect technical scenario, especially when combined with the daily price resistance, for a strong reaction to any negative news.

June's nonfarm payrolls were expected to have increased by 100,000-125,000. Instead, the economy gained a mere 18,000 jobs in June. This was even worse than the 25,000 added the previous month and is the smallest increase since September. The private sector added only 57,000 jobs, which is the lowest growth since May 2010. Even the anticipated increase would not have been enough to keep up with population growth (which would mean job creation at a rate of 150,00-250,000 a month) and the results hit the market hard with all three of the major indices entering free-fall mode in premarket trade.

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