Services Report Weighs on Stock ETFs | ETF Trends

Stock index exchange traded funds (ETFs) were down sharply Wednesday morning after a report on the U.S. services industry came in much weaker than expected.

  • The Institute for Supply Management’s index of non-manufacturing companies slumped to 52.8 in April, the lowest since August, from 57.3 a month earlier. The median forecast of 73 economists surveyed by Bloomberg News was 57.5. Readings greater than 50 signal growth for about 90 percent of the economy. Estimates ranged from 54.5 to 59. The Tempe, Arizona-based group’s index of the industry, which accounts for about 90 percent of the economy, averaged 56.1 in the five years to December 2007, when the last recession began. The ISM services survey covers industries that range from utilities and retailing to health care, finance and transportation. Today’s report follows the group’s May 2 figures that showed manufacturing grew more than forecast in April, driven by gains in exports and inventories. The Industrial Select Sector SPDR ETF (NYSEArca: XLI ) is flat in early trading.
  • Private employers added 179,000 jobs in April, while payrolls for March were revised up modestly, a report by a payrolls processor showed on Wednesday. The ADP Employer Services report came in shy of economists’ expectations for a gain of 198,000, according to a Reuters survey. March private payrolls were revised up to an increase of 207,000 from a previously reported 201,000. The figures come ahead of the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment. “Certainly people will look into this and be pessimistic or cautious about Friday’s numbers,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York. “The breakdown from the release did show some strength in small and medium businesses. The weakness was actually in large businesses, and that is unusual. But certainly optimistic for a broader strengthening in employment.” The SPDR S&P Retail ETF (NYSEArca: XRT) started moderately higher early Wednesday.
  • Oil prices slipped below $111 a barrel Wednesday as a report showed U.S. crude supplies rose more than expected last week, suggesting weaker demand. The American Petroleum Institute said late Tuesday that crude inventories rose 3.2 million barrels last week, more than the increase of 1.7 million barrels predicted by analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos. Inventories of gasoline rose by 657,000 barrels while distillates fell 1.5 million barrels, the API said. Before last week’s gain, U.S. gasoline inventories had fallen the previous three weeks. “Demand has clearly weakened, which is not surprising given the high price level,” said analysts at Commerzbank in Frankfurt. Investor can play the bearish trend with the ProShares UltraShort Oil & Gas ETF (NYSEArca: DUG) jumped over 3.5% early Wednesday.

Gregory A. Clay contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.