Market OK with Bad News

Two more economic data misses for the US economy were realized this morning; with both bits of data looking more like trends then one-off blips.

First, ADP reported that private-sector employment picked up just slightly in February but remained slow and missed consensus estimates.

Private-sector employers added 139,000 jobs last month, up from a revised 127,000 in January, but down from 205,000 in February 2013, according to ADP. Economists had forecast that employers would be adding 160,000 jobs, compared with an originally estimated January increase of 175,000, according to Forex Factory.

“February was another soft month for the job market. Employment was weak across a number of industries,” said Mark Zandi, chief economist of Moody’s Analytics, which prepares the report with ADP’s data. “Bad winter weather, especially in mid-month, weighed on payrolls. Job growth is expected to improve with warmer temperatures.”

The three-month trends continued to show weakness: Over the quarter that ended in February, private-sector employers added an average of 153,000 jobs per month, down from 196,000 during the year-earlier period.

About an hour later, ISM services PMI missed estimates as well.  The index came in at 51.6 versus expectations for 53.8.  The index has been in a declining trend for the last 6 months and has missed 4 of those last 6 months’ expectations.

Finally, the afternoon revealed the Fed’s Beige Book, which also showed further economic weakness, but attributed the slow period to mother nature. The Federal Reserve’s Beige Book noted that U.S. economic conditions in January and early February were difficult to discern due to severe cold weather.

Logically, stocks likely would move lower, but major stock indices traded in a narrow range after a big rally on Tuesday, which sent the S&P 500 and the Russell 2000 to record levels. The S&P 500 finished basically where it closed on Tuesday, down less than a point at 1,873.81. The Dow gave back 35.70 points, or 0.2%, to 16,360.18 and the Nasdaq added 6 points, or 0.1%, to 4,357.97, the highest level since April 2000.

The bottom line is that US equities still remain relatively attractive to other assets and ultra-low rates still deter safety seekers from flocking to low volatility instruments.  The fact that economic data seems relatively shaky might just be what the doctor ordered; weak enough to prolong record low interest rates and keep dollars flowing into stocks but not so weak that earnings deteriorate.  That thought process seems to be working…for now

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