Long/Short Equity, Portfolio Strategy
Seeking Alpha Analyst Since 2008
By Carlos Guillen
Quite encouraging today, equity markets are still attempting to move even higher, with the Dow Jones Industrial Average close to 45 points from reaching a new all time high. Despite rather mixed economic data points from ADP private-sector payrolls and factory orders, investors continue to put their cash on equities as they still see an overall improving economic backdrop.
Quite disenchanting this morning was the ADP report, which showed that less than expected jobs were added to the economy and raised a sense of caution about what to expect this Friday when the government's numbers are delivered. According to ADP, non-farm private sector jobs increased during March by 191,000, worse than economists' average forecast calling for a 215,000 increase; however, still making 49 months of nonfarm gains. It should also be noted that non-farm private sector job gains in February were revised higher by 39,000 to 178,000, which served to offset the short fall in March.
The data showed that payroll gains were achieved across the board but were predominantly driven by small businesses, which added 72,000 jobs. Large business payrolls increased by 67,000, and medium businesses added 52,000. Not surprisingly, most of the added jobs came from the services sector, which ADP said added 164,000 jobs, while the goods-producing sector experienced a gain of 28,000 positions. At the moment, economists are predicting that the government numbers to be released this Friday will show that private sector businesses added 205,000 jobs in March and that the unemployment rate likely declined to 6.6 percent.
Perhaps serving to lift the market's spirits a bit today was that factory orders landed above expectations. According to the U.S. Census Bureau, new orders for manufactured goods during February increased month-over-month by 1.6 percent to $488.8 billion, better than the Street's consensus estimate calling for a 1.1 percent month-over-month rise. Concurrently, new orders for consumer goods rose by 1.7 percent, after decreasing by 1.0 percent in the prior month, and non-defense capital goods (excluding aircraft) rose by 0.8 percent, after decreasing by 1.6 percent in the prior month. These orders are considered a proxy for future business investment in items such as computers, engines and communications gear, so its recent increase bodes well for overall economic growth in the short term. Despite this, it is apparent that the U.S. economy is still slowly improving as the overall trends in economic data are still signaling expansion, and with continuing low interest rates, the backdrop for growth is still favorable.
In all, despite quite a bit of volatility during today's trading session, the Dow continues to trade in the green and may end in its third day of gains for the week.