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Fresh Stock Records Dangling Overhead But That Jobs Report Looms

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May 5, 2015

Wall Street is spinning its wheels early Tuesday after Monday’s flat finish followed two days of gains for the major indexes. The S&P 500 (SPX) closed only a few points shy of its record-high close set on April 24 although the index gave that record a few pokes during intraday trading (figure 1).

Interestingly, the CBOE Volatility Index (VIX) nosed higher Monday despite the largely up-day for the broader market. VIX briefly pierced 13, shy of the 15 hit briefly last week. It’s not surprising to see some participants nibbling on short-term protection in the build-up to Friday’s jobs report release.

Mid-morning features a snapshot of the service-sector in the Institute for Supply Management (ISM) index. Strength or weakness in its sub-measure of hiring could be a potential curtain-raiser for the payrolls count from this sector in Friday’s big-picture report. ISM-services is expected to come in at 56.5% in April, unchanged from March, according to industry economists.

FIGURE 1: JUST SHY.

The S&P 500 (SPX) tested fresh record highs in Monday’s session before ending shy of a close in uncharted territory. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Happiest Place on Earth? For shareholders, in the short term—yes. Disney (DIS) reported a 7% revenue rise in the first three months of the year, boosted by its cable business and consumer products, which offset studio weakness. Shares, which have gained some 37% over the past year, are firmer in early trading. Disney reported a profit of $2.11 billion, or $1.23 a share, up from $1.92 billion, or $1.08 a share, a year earlier. Excluding certain items affecting comparability, per-share earnings rose to $1.23 from $1.11. Revenue increased to $12.46 billion from $11.65 billion. All figures beat Street estimates.

Sticking to It. The Chicago Fed’s Charles Evans stood by his declaration that the U.S. central bank should stand pat on interest rates until early 2016. Evans, according to media outlets covering his speech, said that weak Q1 gross domestic product data "do give me pause," but said he still expects the economy to bounce back based on sound fundamentals. Still, Evans thinks inflation will stay below the Fed's 2% annual target until 2018.

Divergent Policy. Evans may favor a go-slow Fed, but there’s little denying that the U.S. policy bias tilts up. Today’s action on the other side of world reminds us all that the globe’s central banks can’t operate from the same playbook right now. The Reserve Bank of Australia cut its policy interest rate by a quarter percentage point Tuesday, putting the benchmark at 2%, its lowest ever. Many market participants had expected the move, according to Reuters. Bank officials pointed to improving employment and consumer demand but weak capital investment and government spending meant there would be "a degree of spare capacity for some time yet." In the bank’s statement, officials said further depreciation for the Australian dollar was likely and necessary given falling commodities prices.

Good trading,
JJ
@TDAJJKinahan

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