Not even an outstanding payroll report was able to contain Wall Street's descent today.
Ongoing worries about Greece's debt crisis and uncertainty surrounding the UK's hung parliament result took centre-stage, which weighed on confidence and triggered another broad-based sell-off.
The non-farm payroll data released in the US today showed a massive 290,000 rise in new jobs for April; even better, 210,000 private sector jobs were created – more than double consensus expectations. The report also showed 66,000 temporary workers were hired by the government for its 2010 Census.
These figures follow a barrage of positive US economic data and suggest that the economic recovery is gaining traction. The unemployment rate increased from 9.7% to 9.9%, however, implying that long-term structural issues remain to be addressed. The outlook for the US labour market is promising, however, as bellwethers GE, Caterpillar and Warren Buffett's Berkshire Hathaway are now beginning to ramp up hiring again to meet demand across their manufacturing and industrial businesses. Assuming the US continues to create jobs, then we can expect American consumers to make a comeback.
The positive data was not enough to spur a sustainable rally, however, with equity markets turning cautious soon after the data, as investors turned their focus back to Europe's sovereign debt issues.
At 3.45 pm (London time), the Dow Jones Industrial Average was 190.60 points lower (-1.85%) at 10329.72. In addition, the S&P 500 fell 23.39 points (-2.12%) to 1104.76 and the NASDAQ 100 retreated 52.07 points (-2.83%) to 1841.68.
With the UK election resulting in a hung parliament, attention now turns to how a coalition government will be formed. Liberal Democrats leader Nick Clegg is of the view that the majority-winning party should have the first opportunity to form a coalition, which traditionally has gone to the incumbent administration. The political bickering could take weeks, with the markets hoping for a swift and cohesive government to be formed quickly so the nation can move forward in addressing its deficit gaps.
Sterling has dropped off significantly as a result, trading at $1.475 against the greenback. The euro is also trading at record lows against the dollar ahead of a Group of Seven meeting, scheduled today in Brussels to discuss measures to stabilise Europe's financial markets. If the discussions are positive we could see the euro bounce back although the markets are increasingly demanding decisive action is taken in order to dispel any fears of contagion risk gripping the region. Anything less could see further pressure on the euro.
With all the volatility in the currency markets, it will be interesting to see what effect the stronger US dollar will have on America's export demand. If the dollar continues to rise, the US economy will have to rely on internally driven growth, a true indication of the health of the economy.
After yesterday’s trading 'glitch', which saw nearly 1000 points wiped off the Dow Jones, some commentators are suggesting that a market correction may be around the corner. According to Jeff Rubin of Birinyi Associates, 'Almost all bull markets have a correction at some point and that point could be now.' However even with a correction, the outlook for the US economy remains promising in my opinion.
A rebound in commodity prices was not enough to lift resource stocks today. Exxon Mobil, Alcoa and Chevron lost around 0.5% each. Financial stocks are still reacting to contagion fears in Europe, with JP Morgan, Wells Fargo and Bank of America losing between 1% and 1.5%. Goldman Sachs was able to buck the negative trend, however, after suggestions the bank may settle its dispute with the SEC out of court. Its shares were 0.13% higher at $142.62.
American International Group returned to profit, with the company announcing a $1.5 billion profit, or $2.16 a share, compared to a $36.67 loss per share one year ago. The insurance company which was bailed out by the US government in 2008, benefited from stabilising insurance premiums and lower catastrophe-related payouts. After opening 2% higher the stock slid into red and was trading 3.67% lower at $35.40.
And finally, Avis Budget Group announced it has begun reviewing the books for Dollar Thifty Group. Avis may decide to make a counter offer for Dollar Thifty, which last month agreed to a buyout offer from Hertz Global Holdings. Investors of Dollar Thrifty stand to benefit if a bidding war breaks out.
