One would have thought the markets were poised for another record-breaking day Wednesday morning. The jobs numbers from ADP continue to show strong growth in the economy. The S&P 500 (^GSPC, SPY) reacted with a 0.8% rise. The masses started buying, and volume picked up.
Then came the latest minutes from the Fed’s meeting on March 14 and 15. Unlike the masses buying shares on today’s economy news, the big institutions looking to the future started to sell. The S&P 500 gains evaporated over the afternoon to close down 0.3%. The Nasdaq Composite (^IXIC, QQQ) went from a positive +O.6% all-time high to finish down -0.6%. As expected with such volatility, the volume on both the Nasdaq and the NYSE were above average, with losers outpacing winners by a two-to-one margin on the Nasdaq and an almost identical margin on the Big Board.
Paul Ryan’s curveball
Most economists I spoke to pointed to the statement that some FOMC members thought, “Stocks were quite high relative to standard valuations measures.” To anyone watching and following the market since the election, this was no real shocker of a statement. My colleagues at Focused Stock Trader pointed out in their morning notes that one of the real catalysts of yesterday’s selloff was Speaker of the House Paul Ryan saying, “The road to US tax cuts would be longer then health reform.” Wall Street was looking for a summer move on tax cuts, and much of the rally in stocks this year was based on quick tax reform.
Besides the ADP jobs report, we had very strong manufacturing employment numbers — the highest since since 2011 and nearing a 20-year high. In addition, export orders to the rest of the world were at a 25-year high.
Time to sit back and watch the headlines
So, what’s it all mean? Today, we will wait for tomorrow’s government non-farm payrolls numbers to hopefully verify ADP tabulations. Then we will wait to see how the meetings between President Trump and Chinese President Xi progress. As Harris Shapiro of Focused Stock Trader points out, one misstep by either leader could send the markets into a downward spiral.
Peter Chu, CEO of Silverbear based in Hong Kong, points out there is guarded optimism about Xi’s visit and that these talks are critical to a unified path forward for both nations. It very well may be a time to sit back and not buy stocks the next few days. Let’s see how things play out.