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Stock Pressure Percolating Ahead of Payrolls Data

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March 4, 2015

U.S. stock markets are shuffling in the red for a second session as fresh record highs and the NASDAQ Composite’s tickle of 5,000 has promptly turned to consolidation. Trepidation creeps in with uncertainty percolating over the breadth of hiring in Friday’s payrolls report. Disappointing car sales in a Tuesday release set off the bears and the CBOE Volatility Index (VIX) rose 6%, a little up-move that came just as volatility watchers were starting to get nervous about market complacency. Global markets took in another round of interest-rate cuts, in India, and again in a short time in China, in stride, although the news emphasizes the gap between a rate hike-favoring U.S. and … much of the rest of the world.

CBOE Volatility Index (VIX) remains near multi-week lows below 14

FIGURE 1: VIX CHURNING AT LOWS.

The CBOE Volatility Index (VIX) remains near multi-week lows below 14 but did stir to life with a 6% gain in Tuesday’s session. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Payrolls Puzzle Pieces. Data trickles in this week in the lead-up to Friday’s typically closely watched government-issued job stats. Today, payrolls processing firm ADP said private-sector employment gains continued in February but at a slower pace than in the prior month. Employers in its survey added 212,000 jobs last month, below January's revised gain to 250,000. Economists polled by MarketWatch expect the government's report to show that nonfarm payrolls rose by a 238,000 last month, a trim from a gain of 257,000 in January. Just as background: ADP data has shown smaller gains than the nonfarm payroll data in recent months. There’s also some chatter pre-Friday that weaker manufacturing-sector sentiment gauges out earlier this week could raise jitters for factory-sector hiring in Friday’s report. Once again, we’ll all be asking: is growth in seasonal, entry-level jobs or high-paying industrial and so-called career jobs?

Oil Industry Snapshot. Here’s a micro peek at one of the stock market’s major macro drivers of late—oil. Major producer ExxonMobil (XOM) this morning said it plans to start up 16 major oil, natural gas projects over the next three years. It sees 2015 production up 2% to 4.1 million oil-equivalent barrels per day, which indicates higher U.S. supplies. But XOM is reining in spending. Is that because of oil’s price drop and will it help supply better align with demand? XOM guides for 2015 capital expenditures of $34 billion, down 12% from the year-earlier comparison; it expects 2016, 2017 capex to average less than $34 billion. Industry data from the American Petroleum Institute showed supply gaining less than expected in the latest week. Crude futures are tipping back above $50 a barrel in early electronic trading.

Keep Your Shirt On. Wall Street is not working up much of a lather following pretty ugly Abercrombie & Finch (ANF) earnings and guidance out earlier Wednesday. The sometimes negative news-making teen retailer missed Street expectations for its 14% drop in sales in the holiday quarter. The company said ANF will face continued declines in its logo business and strong-dollar pressure in the coming months but it does expect changes (its management shuffle continues) to show up in second-half figures. Overall, Abercrombie reported a profit of $44.4 million, or $0.63 a share, compared with a profit of $66.1 million, or $0.85 a year earlier. Excluding special items, earnings were $1.15 a share. Revenue fell 14% to $1.12 billion. Rival American Eagle (AEO) shares shot up some 10% early Wednesday after it issued Street-beating sales and earnings.

Good trading,
JJ
@TDAJJKinahan

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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