Employment Data Anchors a Volatile Week
The capital markets experienced a rocky ride during the past week. The beginning of the week mimicked the price action investors experienced during the last week of January, were volatility increased as riskier assets lost value. The end of the week saw a turn in price action as better than expected economic data help buoy both equity bourses and riskier currencies. Green Mountain and Coke forged an agreement to compete with Soda Stream while Twitter tumbled after missing earnings. For the week the S&P 500 finished in the black with a 0.81% gain.
The week started off on the defensive after the ISM released a weaker than expected manufacturing report. January manufacturing slumped to a reading of 51.3, its lowest reading since May, though still indicating an expansion of activity. The metric missed a projected 56 and marked a drop from December's 56.5.
Equities seemed to turn after the ISM services number was released on Wednesday. According to the Institute of Supply Management, their services headline index rose to 54.0 from December's 53.0 reading. Economists were looking for a smaller advance to 53.7. The all-important employment sub-component advanced to 56.4 from 55.6. The figures suggest that overall business activity in America's services sector, which accounts for roughly 80% of the economy, accelerated more than expected in January, as did hiring in the sector.
On the employment front jobless claims decreased by 20,000 to 331,000 in the week ended February 1, 2014. That was slightly lower than the 335,000 forecast by economists and reversed most of the prior week's gain.
Additionally, Automatic Data Processing (NASDAQ:ADP) and Macro Advisors released their private non-farm payroll report. According to ADP private payrolls increased by 175,000 in January compared to the 189,000 expected by economists. The biggest gain came in the service sector which increased by 160,000. The goods sectors increased by 16,000, while small business increases increased by 75,000. Revisions were a non-event which calls into question the governments December report.
Economic data was anchored by a weaker than expected government employment report. The 113,000 jobs created were much weaker than the 189K expected by economists. Traders initially were able to pass the softness off on weather. The colder than normal temperatures as well as, the nasty ice and snow storms, likely eroded job creation. The unemployment rate printed at 6.6% which was in line with expectations.
In corporate news, Green Mountain's (NASDAQ:GMCR) shares soared on news that Coca Cola (NYSE:KO) will acquire a 10% holding in Green Mountain for $1.25 billion as part of a 10-year partnership in which it will exclusively sell Coke-branded pods for use with the upcoming Keurig Cold single-serve beverage system. The machine will make carbonated drinks, enhanced waters, juice drinks, sports drinks and teas.
Twitter (NYSE:TWTR) released its first earnings report, beating on both the top and bottom line, but losing ground after the company announced that it only added 9 million monthly active users in the last three months of 2013, an increase of just 4% from the previous quarter. One million of those new users were in the US. The decline in the trajectory of new and existing users spooked investors sending the stock down more than 20%.