The stock market ended the midweek affair on a modestly lower note as investors favored a cautious approach ahead of Friday's employment report. Other focal points impacting today's trade included a downturn in crude oil futures and relative weakness from the heavily-weighted industrial (-0.5%) sector. The S&P 500 (-0.2%) erased a modest month-to-date gain, surrendering 0.1% in August.
The major averages slipped at the beginning of the session as investors responded to weakness from the oil patch and a mixed performance from global bourses. Crude oil futures were under pressure overnight after the American Petroleum Institute reported a larger-than-expected build in crude oil stockpiles. The energy component extended its loss after the Department of Energy confirmed the disappointing reading with its more influential stockpile data.
The EIA reported that crude oil stockpiles rose by 2.27 million barrels (consensus: +0.92 million) while gasoline inventories declined by 0.69 million barrels (consensus: -1.15 million). As a result, WTI crude slipped from the $46.00/bbl price level, remaining pressured throughout the session. Crude oil ended lower by 3.5% ($44.71/bbl; -$1.63), narrowing its August gain to 7.6%.
Sellers pressed the broader market near midday, corresponding with remarks from Leon Cooperman of Omega Advisors. The investment fund chairman stoked selling interest when he stated that his fund recently trimmed its equity exposure. Mr. Cooperman expressed concerns regarding finding undervalued assets in the "fairly but fully" valued state of the broader market.
The benchmark index pared losses in the second half of trade, reclaiming technical support near the 2170 price level. Seven sectors ended in the red with commodity-sensitive materials (-0.9%) and energy (-1.4%) acting as notable laggards. Conversely, financials (+0.1%), consumer staples (+0.1%), and utilities (+0.3%) ended with the only gains.
The Dow Jones Transportation Average (-0.4%) ended behind the broader market as airlines underperformed. The U.S. Global Jets ETF (JETS 22.54, -0.16) settled lower by 0.7%, pulling back from yesterday's 2.1% gain. In the broader industrial sector (-0.5%), Dow component Boeing (BA 129.49, -1.32) ended behind the price-weighted index while Lockheed Martin (LMT 243.01, +3.56) rebounded 1.5%.
Retail names underperformed in the consumer discretionary sector (-0.3%) as investors looked ahead to the release of same-store sales data later in the week. Nordstrom (JWN 50.45, -1.00) and Gap (GPS 24.87, - 0.47) ended lower by 1.9% apiece. The broader discretionary sector declined 1.4% this month, trailing the remaining cyclical sectors.
In the financial sector (+0.1%), rate-sensitive real estate investment trusts outperformed, evidenced by the 0.2% gain in the iShares Dow Jones Real Estate ETF (IYR 82.54, +0.16). On a related note, the real estate sub-group will be removed from the broader financial sector tomorrow and a REIT sector will be formed. This will be the first change to the ten economic sectors since 1999. The financial space gained 3.6% in August, leading the remaining sectors.
Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 10-yr note ended higher by one basis point (1.58%) while the yield on the 2-yr note settled flat at 0.81%.
Today's participation was above the recent average as more than 1.08 billion shares changed hands on the NYSE floor.
The MBA Mortgage Index showed that mortgage applications increased 2.8% in the week ending August 27. This followed a 2.1% decline in the prior week.
The ADP Employment Change report for August estimated that 177,000 positions were added to private sector payrolls versus the Briefing.com consensus estimate of 170,000. July was revised up to 194,000 from 179,000.
The report doesn't alter expectations for Friday's Employment Situation report nor does it weaken any inclination the Fed might have to raise rates at its September meeting.
The Chicago Purchasing Managers Index (PMI) dropped to 51.5 in August (Briefing.com consensus 54.5) from 55.8 in July. The demarcation point between expansion and contraction for this report is 50.0.
The report suggests that the pickup in manufacturing activity in the Chicago Fed region in June and July may have only been a temporary condition, bolstered simply by the need to increase inventory levels.
Pending Home Sales for July rose by 1.3% while the Briefing.com consensus expected an increase of 0.7%. Separately, the June reading was revised to -0.8% from 0.2%.
Tomorrow's economic data will include the 7:30 ET release of the Challenger Job Cuts Report for August. Weekly initial claims (Briefing.com consensus 265k) and the revised estimate for second quarter Productivity (Briefing.com consensus -0.6%) and Unit Labor Costs (Briefing.com consensus 2.1%) will each cross the wires at 8:30 ET. Construction Spending for July (Briefing.com consensus +0.6%) and the ISM Index for August (Briefing.com consensus 52.2) will each be released at 10:00 ET. Separately, August Auto and Truck Sales data will be made available throughout tomorrow's session.