Upbeat Service Data Leads To Modest Strength On Wall Street - U.S. Commentary

(RTTNews) - After recovering from an early move to the downside, stocks moved modestly higher over the course of the trading day on Wednesday. Buying interest was somewhat subdued, but the S&P 500 still managed to reach a new record closing high.

The major averages moved roughly sideways going into the close, hovering in positive territory. The Dow edged up 15.19 points or 0.1 percent to 16,737.53, the Nasdaq climbed 17.56 points or 0.4 percent to 4,251.64 and the S&P 500 rose 3.64 points or 0.2 percent to 1,927.88.

The early weakness on Wall Street was partly due to the release of a report from payroll processor ADP showing that the pace of private sector job growth slowed more than expected in May.

ADP said private sector employment rose by 179,000 jobs in May following an increase of 215,000 jobs in April. Economists had been expecting an increase of about 210,000 jobs.

The weaker than expected private sector job growth raised some concerns about Friday's jobs report from the Labor Department, which includes both private and public sector jobs.

The Commerce Department also released a report showing that the U.S. trade deficit widened by much more than expected in April amid a drop in the value of exports and an increase in the value of imports.

However, stocks turned higher following the release of a separate report from the Institute for Supply Management showing that its index of activity in the service sector rose by more than economists had anticipated in the month of May.

The ISM said its non-manufacturing index climbed to 56.3 in May from 55.2 in April, with a reading above 50 indicating growth in the service sector. Economists had been expecting the index to show a more modest increase to a reading of 55.5.

With the bigger than expected increase, the non-manufacturing index rose to its highest level since reaching 57.9 in August of 2013.

Jay Morelock, an economist at FTN Financial, said, "The ISM non-manufacturing index covers almost 90% of the economy, making above-consensus strength a positive sign for increased growth in Q2."

Late in the trading day, the Federal Reserve's Beige Book noted that all twelve districts said economic activity expanded during the current reporting period.

Nonetheless, traders seemed somewhat reluctant to make any significant moves ahead of the European Central Bank meeting on Thursday and the release of the closely watched U.S. jobs report on Friday.

Sector News

While most of the major sectors ended the day showing only modest moves, considerable strength was visible among biotechnology stocks. The NYSE Arca Biotechnology Index rose by 1.4 percent to its best closing level in two months.

Exact Sciences (EXAS) helped to lead the biotech sector higher, with the molecular diagnostics company surging up by 6.4 percent.

Brokerage stocks also showed a notable move to the upside, driving the NYSE Arca Broker/Dealer Index up by 1 percent. Piper Jaffray (PJC) and MarketAxess (MKTX) turned in two of the brokerage sector's best performances.

Retail and computer hardware stocks also saw some strength on the day, while modest weakness was visible among telecom and oil stocks.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly lower on Wednesday. Hong Kong's Hang Seng Index and Australia's All Ordinaries Index both fell by 0.6 percent. However, Japan's Nikkei 225 Index bucked the downtrend and crept up by 0.2 percent.

Meanwhile, the major European markets ended the day on opposite sides of the unchanged line. While the German DAX Index inched up by 0.1 percent, the U.K.'s FTSE 100 Index dipped by 0.3 percent and the French CAC 40 Index edged down by 0.1 percent.

In the bond market, treasuries moved modestly lower, extending the recent pullback off last week's highs. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 1.3 basis points to 2.606 percent.

Looking Ahead

Trading on Thursday may be driven by reaction to the ECB decision, with the central bank widely expected to announce new stimulus measures. The news from the ECB is likely to overshadow the Labor Department's report on weekly jobless claims.