Market Update: Wednesday, May 04, 2016


  • Index slide continues ahead of economic data dump. U.S. equities are down this morning after falling roughly 1% on Tuesday, as traders digest a swath of economic data including: the ADP employment report, productivity, and trade balance figures. Meanwhile, stocks in Europe are trading lower following services Purchasing Managers’ Index (PMI) data, which did indicate the European Central Bank’s stimulus efforts are starting to spur modest growth, though data missed estimates and inflation remains elusive. Asian markets followed Wall Street’s cue with major indexes throughout the region finishing in the red; Japan remains closed for a national holiday. Elsewhere, WTI crude oil is rebounding after shedding 2.5% in the prior session, while COMEX gold is lower, Treasuries are flat, and the dollar is moving off 16-month lows.


  • Productivity still stalled. Output per hour (productivity) remained tepid in Q1 2016, rising only 0.6% from a year ago. Prior to the Great Recession, productivity was running in the 1.5-2.0% range. We explore the implications of slowing productivity in our recent blog post.
  • April ADP employment report a clunker, or sign of things to come. At just +156,000 in April, the ADP employment count of the increase in private payrolls in April 2016 was lower than expected (195,000) and below the March reading of 194,000, which was revised lower from +200,000 reported last month. While financial markets may not believe this, Federal Reserve Bank (Fed) officials have said job gains in the range of 125-150,000 per month are sufficient to tighten labor market and push up wages. So even at 156,000–and the 200,000 per month in the last 12 months–labor market conditions are still tightening. The U.S. Bureau of Labor Statistics will release its April Employment Situation Report on Friday. The consensus is expecting a 200,000 increase in jobs and a 4.9% unemployment rate.
  • Trade gap narrows more than expected in March. Imports exceeded exports by $40 billion in March, an improvement over the $47 billion gap in February, and more importantly, narrower than what was baked into the Q1 gross domestic product (GDP) report (~$42 billion). As a result, and all else equal, Q1 GDP, which was initially reported as 0.7% increase, is likely to be revised higher when revised data are reported at the end of the month.
  • Another “sell in May” angle. We talked about the sell in May phenomenon in this week’s Weekly Market Commentary, and looked at a couple different angles. Here is another:  How does sell in May work when November to April does not, as was the case this year (-0.7%)? In other words, if the S&P 500 is down during the November to April period, when the seasonal pattern says it should be up, what does that mean for May to October? The answer is that stocks could potentially do worse and experience even more volatility. More on this later today in our blog.
  • Trump brings political uncertainty to the fore. Donald Trump is the presumptive Republican presidential nominee after Ted Cruz withdrew from the race last night. Regardless of one’s political views, markets do not like uncertainty, and Trump—and the broader anti-establishment movement that has also boosted Bernie Sanders—are certainly unpredictable. While a small portion of this morning’s stock market sell-off may be attributable to political uncertainty, we would anticipate more market volatility in the coming months as the market begins to dissect potential policy outcomes.



  • ADP Employment (Apr)
  • ISM Non-Mfg. (Apr)
  • Productivity (Q1)



  • Employment Report (Apr)


  • Employment Report (Apr)

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The economic forecasts set forth in the presentation may not develop as predicted.

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