MW: U.S. stocks jump as investors digest data, ECB
U.S. stocks climbed Wednesday as investors assessed a series of economic reports, including a private-sector jobs report, trade-deficit data and upbeat sentiment in Europe.
Private-sector employment picked up in May as businesses added 201,000 jobs, the most in four months, according to data released Wednesday.
Meanwhile, the U.S. trade deficit shrank 19% in April to $40.9 billion. The smaller trade deficit in the first month of the second quarter suggests trade will be less of a drag on the U.S. economy in the spring.
Stronger economic reports may embolden the Federal Reserve to start normalizing interest rates sooner. Currently, markets are pricing in a September rate hike, having written off the possibility of an increase this month.
U.S. stocks also appeared to be taking cues from European stock markets, which were SXXP, +0.07% higher as the European Central Bank left interest rates unchanged as expected but delivered an upbeat assessment of the effect of its economic stimulus plan and underscored its commitment to the bond-buying program.
Bond markets in the U.S. and Germany reacted by selling off. Yields in 10-year German benchmark bonds, otherwise known as the bund, pushed higher, soaring to its highest yield, 0.86%, in months. U. S. Treasurys also jumped.
An improving view of Greece’s debt negotiations also was factor in the burgeoning rally in the markets and the selloff in bonds, which implies a heighten appetite for riskier assets.
That optimism may be spilling over into stocks where the S&P 500 SPX, +0.56% added about 10 points, or 0.5%, higher at 2,120. The Dow Jones Industrial Average DJIA, +0.83% added 143 points, or 0.8%, to 18,160. The Nasdaq Composite COMP, +0.74% was up 35 points, or 0.7%, at 5,112.
Scott Wren, senior global equity strategist at Wells Fargo Investment Institute, played down the importance of the ADP report, saying it isn’t always an accurate predictor of the official jobs report due on Friday.
“We expect the non-farm payrolls in the region of more than 200,000, which would be good but not great. We also take the 5.4% unemployment rate with a grain of salt, as there are still too many underemployed and part-time workers, which suggest the labor market is not tightening fast enough. But the Federal Reserve is still likely to raise interest rates this year and we think it will be in September,” Wren said.
Jeffrey D. Saut, chief investment strategist at Raymond James in a note wrote that he continues to believe the upside should be favored until proven wrong in the days ahead.
“The equity markets, however, remain choppy and untrending. That pattern should continue into next week when the markets should be re-energized for a move higher,” Saut wrote.
