Wednesday March 8th

8-03-2017

Stocks mixed as energy lags; oil drops more than 3%

U.S. equities traded mixed on Wednesday, as investors digested scorching employment data, while oil prices weighed on energy stocks. The Dow Jones industrial average fell about 30 points, with Caterpillar contributing the most losses. The S&P 500 traded 0.04 percent lower, with energy falling more than 1.5 percent to lead decliners. U.S. crude prices fell 3.5 percent to $51.27 per barrel after data from the Energy Information Administration showed inventories rose by 8.2 million barrels last week. The Nasdaq composite rose 0.2 percent. On the data front, private sector employment rose by 298,000 jobs last month, according to ADP and Moody's, well above a Reuters estimate of 190,000. The report encompassed the first full month under President Donald Trump, who has pledged to rebuild the nation's aging infrastructure system. The data come just days ahead of the U.S. government's nonfarm payrolls report. "It's kind of funny because, about a month ago, it was the bond market taking a wait-and-see approach; now it's stocks," said Nick Raich, CEO at The Earnings Scout. "They are not moving in tandem at all." Treasury yields extended gains following the data release, with the benchmark 10-year yield hitting its highest level since December and the two-year note yield reaching levels not seen since 2009. "That's a very strong report. That could mean a more aggressive Fed and that could be a negative for stocks," said Bruce Bittles, chief investment strategist at Baird, referring to the ADP report. "But the fact that stocks are holding up here is surprising." The Federal Reserve is scheduled to meet next week and is widely expected to tighten monetary policy. According to the CME Group's FedWatch tool, market expectations for a March rate hike were around 91 percent. Other data released Wednesday included fourth-quarter productivity, which remained unrevised at a gain of 1.3 percent. Wholesale inventories fell 0.2 percent, more than expected. Stocks have been on a tear lately amid a backdrop of improving economic data and the prospects of pro-growth policies being enacted by the Trump administration. Over the past month, the three major U.S. indexes had gained at least 2.67 percent entering Wednesday's session. But equities have hit a soft patch this week, amid concerns that Trump will not be able to deliver on his promises as fast as it expected and worries that the market may be too expensive at this point. "Stretched valuations apparently forced many equity hedge funds to jettison some of their exposure during the past month," said Jeremy Klein, chief market strategist at FBN Securities, in a note. "The S&P 500 has taken a modest step backward after its forward multiple exceeded 18.0x for the first time since the waning days of the Dot Com Bubble." The S&P was on track to snap a six-week winning streak entering Wednesday trading. "I think the stock market is catching up to the bond market, saying 'things are going to be great, but not as great as we thought,'" said The Earnings Scout's Raich. That said, hedge fund manager David Tepper told CNBC's "Squawk Box" on Wednesday that it's hard to short stocks despite their current valuations, adding he is short bonds. The iShares 20+ year Treasury Bond ETF (TLT) fell in the premarket following those remarks and traded about 0.7 percent lower. In corporate news, Caterpillar's stock fell after The New York Times reported that a new government report accused the company of using improper accounting methods to boost its stock price. The U.S. dollar rose 0.3 percent against a basket of currencies, with the euro near $1.054 and the yen around 114.61. Overseas, European stocks rose broadly, with the pan-European Stoxx 600 index advancing 0.15 percent. In Asia, equities closed mixed, with the Nikkei 225 falling 0.47 percent and the Shanghai composite ending nearly flat. Gold futures hit a 1-month low on Wednesday after the ADP employment report shattered estimates. U.S. gold futures were down 0.49 percent at $1,210.10. Spot gold fell 0.50 percent to $1,209.55, after touching its lowest since Feb. 1 at $1,206.05, putting it on track for its fifth straight session in the red.