The stock market churn continued Wednesday as the second quarter kicked off.
It was another choppy session with fireworks in overnight futures trading as weaker-than-expected data out of Japan rattled currency market traders. A steep slide at the opening of the cash session in New York was arrested after another soft ADP private payroll report suggested the U.S. job growth is slowing — a dynamic that, if it continues, will force the Federal Reserve to potentially hold off on rate hikes until early 2016.
In the end, the Dow Jones Industrial Average lost 0.4%, the S&P 500 lost 0.4%, the Nasdaq Composite lost 0.4%, and the Russell 2000 lost just 0.1%.
Treasury bonds were the big mover — ostensibly on anticipation of a delayed Fed rate liftoff — with the iShares Barclays 20+ Treasury Bond Fund (NYSEARCA:TLT) rising 1.3% to test recent highs. The 10-year Treasury yield fell to 1.86% as a result.
The drop in yields boosted defensive dividend payers in the telecom and utilities sector. This included a 1.2% gain for Scana Corp. (NYSE:SCG), which was recommended to Edge subscribers in late March and discussed with four other utility stocks in a recent post here.
Energy stocks gained 0.2% as a group thanks to a 4.2% surge in crude oil to close at $49.58 a barrel on data showing U.S. shale oil production is dropping, a fire at a Pemex oil rig, and reports that there is no nuclear deal with Iran that could lift economic sanctions and dump Persian crude into the open market. Negotiations with Tehran are set to continue through Thursday.
Overall stock market breadth is improving, setting up a short-term oversold bounce into the long Easter holiday weekend. There were 204 net advancing issues on the NYSE today — a sign that despite the weak closing numbers, barging hunters were on the prowl.
With job growth apparently slowing, and inflation still soft, there is little reason for the Fed to act. Especially with the Atlanta Fed’s GDPNow real-time Q1 GDP growth estimate falling to 0% this morning.
The chart above from RBS’ Alberto Gallo shows how the futures market is increasingly pricing in no rate hike until January 2016. As this expectation grows in size and visibility, the odds will increase of another Fed-fueled market melt-up — not unlike the stimulus fueled melt-ups seen in markets across Europe and Asia this year.
If so, U.S. equities could be poised to emerge from their long, multimonth funk.