U.S. stocks and exchange traded funds (ETFs) retreated this morning giving back some of the gains accumulated over its four-day rally as many investors found little comfort in data showing signs of an economic recovery.
Worries about the overall health of the economy were fueled by a private-sector report on unemployment published by ADP. The ADP National Employment Report stated that employers shed 532,000 jobs in May, a bit higher than forecast, reports Sara Lepro of the Associated Press. Although the report indicates improvements over the prior month, it still shows signs of a weak economy. The Labor Department will release unemployment numbers on Friday, and economists expect the unemployment rate to balloon up to 9.2%.
To add fuel to the fire, the Institute for Supply Chain Management said its services index registered a 44 in May. This means that the service industry is still contracting and is lower than what economists had forecast. The good news is that the index improved from the previous month signaling that the service sector is contracting at a slower pace.
On a positive note, the numbers of orders to U.S. factories rose 0.7% in April extending a one-month gain and further supporting the belief that manufacturers are recovering. However, this rise was still lower than the 0.9% rise expected by experts. As a result, the iShares Dow Jones U.S. Industrial (IYJ) was down nearly 2% in morning trading.
Federal Reserve Chairman Ben Bernanke is back at the podium giving advice to President Obama’s administration. With massive government spending programs in place and huge declines in tax revenues because of the recession, the federal government is expected to rack up a whopping $1.8 trillion budget deficit and Bernanke states that a strategy to curb the deficit is of priority and needs to be drafted immediately. Bernanke suggests that lack of a sound strategy could potentially lead to lack of investor confidence and endanger the economy’s prospects for long-term health.
Overall all three major market indices were down in morning trading. Both the Dow Jones Industrial Average and the Nasdaq dropped nearly 1% and the S&P 500 was down about 1.5% in morning trading.
Kevin Grewal contributed to this article.
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