Update: Stocks Start May With Losses, Focus On Fed

U.S. stocks are off to a shaky start in May, starting the month in the red on the heels of a very weak private-sector job growth report, as well as continued weak top-line numbers on the corporate earnings front. We are seeing a bit of fatigue set in at the moment, as the market comes off another record setting day on the S&P 500 yesterday, and as trader’s focus turns to this afternoon’s all-important Federal Reserve monetary-policy statement.

As of 10:30AM, the S&P 500 is off nearly -0.5%, falling below 1,590 as it looks to re-test yesterday’s lows of 1,587.

Main Factors Driving Today’s Trade:

–          Terrible ADP Report – U.S. private employers added only 119,000 jobs in April, well below economists’ expectations in the latest piece of data to suggest the economy is encountering a soft patch.  The internals were particularly ugly as manufacturing lost 10,000 jobs – the entire gain was in services. Economists surveyed by Reuters had forecast a gain of 150,000 jobs.  As well, March’s private payrolls were revised down to an increase of 131,000 from the previously reported 158,000.

–          Continued Revenue MissesMastercard’s shares declined 2% after the payments processor reported quarterly revenue slightly below expectations. Time Warner shares also fell after the media company also reported revenue short of Wall Street estimates. Merck reported lower-than-expected first-quarter sales as generic competition hurt demand for its Singulair asthma drug, and the company cut its profit forecast for the full year. Viacom reported a 6% drop in revenue because of a weak slate of movies from its studio Paramount Pictures, but advertising revenue turned positive during the quarter.

–          Weak Economic Data – U.S. manufacturers barely expanded in April as the industry’s rate of growth decelerated to the lowest pace since December, according to the closely followed ISM index. The Institute for Supply Management index fell to 50.7% from 51.3% in March. Construction spending tumbled in March, shedding 1.7% to a seasonally adjusted annual level of $856.7 billion (was projected to rise 0.7% after a 1.2% gain in February). A pullback in Chinese manufacturing has also added to investor caution – China’s official manufacturing PMI fell to 50.6 in April from 50.9 in March, below economists’ expectations from a drop to 50.7.

–          Commodities Under Pressure – WTI and Brent crude are off nearly -3% as a slowdown in U.S. private-sector jobs growth raised worries over energy demand and after a trade group reported a bigger-than-expected climb in last week’s crude inventories. Gold, silver, and copper are also under considerable pressure ahead of this afternoon’s Fed statement.

–          All Eyes On The Fed – At 2 PM ET, the Federal Reserve announces its latest FOMC monetary policy decision. Observers will be watching closely for any change in the language to acknowledge the recent slowdown in economic indicators, especially those dealing with inflation, which has trended down in recent months. This likely provides impetus for continued quantitative easing.

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