MarketView for April 3

Summary

The major equity indexes ended the day lower on Thursday, as the Street turned cautious ahead of Friday's monthly jobs report, while a drop in biotech and momentum shares dragged the Nasdaq down nearly 1 percent.

The Dow ended down just a fraction of a point, within about 4 points of its record closing high of 16,576 set on December 31. The Dow posted an all-time intraday high during the session.

Market outperformers in the Internet and biotech sectors lost ground, resuming a selloff from March after some recent gains. Two weeks ago, biotech shares suffered their worst day since 2011.

Among momentum stocks, the shares of Tesla fell 2.1 percent to $225.40, while Netflix was down 2.3 percent to close at $354.69. Facebook fell 5.2 percent to end the day at $59.49. Some analysts said the selloff in "momentum" stocks has yet to run its course

There was reluctance on the part of many investors to dive in ahead of Friday's nonfarm payrolls report. What everyone is looking for is whether the recent weather-related weakness in the economy has passed. The consensus on the Street right now is that employers added 200,000 jobs to nonfarm payrolls in March.

The options market also focused on momentum stocks, with Tesla remaining a favorite with the speculative crowd for a second day. The total option volume by afternoon was running at about a 30 percent mark-up to what's typically seen.

Anadarko Petroleum rose 14.5 percent to close at $99.02 following news that the company will pay $5.15 billion to settle years of litigation over pollution clean-up claims related to uranium deposits, wood creosote and rocket fuel processing. The agreement marked the biggest environmental bankruptcy settlement on record.

Shares of Barnes & Noble fell 13.5 percent to $19.12 after Liberty Media said it has sold almost its entire stake in the company, ending a nearly three-year bet that the struggling retailer would emerge as a dominant seller of e-books.

The S&P 500 now consists of 501 stocks, with the index including both Google's Class A (GOOGL.O) and Class C (GOOG.O) shares after the company's special dividend. Google's Class A shares rose 0.6 percent to $571.50 while its Class C shares gained 0.5 percent to $569.74.

On the economic front, the U.S. trade deficit unexpectedly widened in February to $42.3 billion as exports hit a five-month low, suggesting that first-quarter growth could be much weaker than initially expected.

A bright spot came from the services sector, where growth accelerated in March after being hampered by unusually cold weather, according to the Institute for Supply Management's services-sector index.

In the biopharmaceutical sector, Gilead Sciences indicated late Wednesday that a trial of its hepatitis C drug sofosbuvir, sold under the brand name Sovaldi in the United States, showed the drug was safe and effective in treating Japanese patients infected with a common form of the virus. Its stock edged up 0.1 percent to close at $74.

Approximately 6.0 billion shares changed hands on the major equity exchanges, a number that was below the 6.4 billion share average so far this month, according to data from BATS Global Markets.

Trade Deficit Expands

A report by the Commerce Department on Thursday indicated that the trade deficit expanded unexpectedly during February as exports hit a five-month low, suggesting first-quarter growth could be weaker than has been forecast. Nonetheless, the economy remains on track to regain momentum as the year progresses. Other data on Thursday showed activity in the services sector accelerating in March after being hampered by unusually cold weather.

According to the Commerce Department the deficit increased 7.7 percent to $42.3 billion, the largest since September last year. The inflation-adjusted gap widened to $50.1 billion from $48.5 billion in January. With a prior expectation of a narrowing of the deficit to $38.5 billion, the new number could mean a reduction of as much as half a percentage point from the first quarter GDP number. It added about a percentage point to fourth quarter GDP.

First-quarter growth estimates, already on the low side were marked down. RBS slashed its first-quarter GDP estimate to an annualized rate of 0.6 percent from 1.2 percent. Barclays and Morgan Stanley cut their estimates by three-tenths to a 1.9 percent and 1.2 percent rate, respectively.

After growing at a 2.6 percent pace in the final three months of 2013, the economy has faced a series of headwinds, ranging from the unseasonably cold temperatures to businesses placing fewer orders with manufacturers after rapidly stocking up their warehouses in the second half of last year. Moreover, growth has also been clipped by the end of long-term unemployment benefits and cuts to food stamps.

In February, exports fell 1.1 percent to $190.4 billion, the lowest level since September. Exports dropped in nearly all categories, with the largest decline in industrial supplies and materials.

While exports to China tumbled 4.6 percent, a 19.5 percent plunge in imports narrowed the politically sensitive U.S. trade deficit with the world's second-largest economy to its smallest level since March 2013.

Some of the drop in imports was likely due to the Chinese New Year holiday. Though overall imports rose 0.4 percent, petroleum imports were the lowest in a year. Declining petroleum imports as a domestic energy production boom reduces the nation's dependency on foreign oil helped to shrink the trade deficit last year. The current account deficit hit a 14-year low in the fourth quarter of 2013.

There has been some optimism over a pick-up in exports, as a result of a strong rise in the export orders component in the Institute for Supply Management's March manufacturing survey.

In a second report, the Institute for Supply Management said its services sector index rose to 53.1 in March from a reading of 51.6 in February, which was the lowest since February 2010.

A gauge of new orders rose for a third straight month and employment in the vast services sector rebounded after contracting in February.

While a third report showed an increase in the number of Americans filing new claims for unemployment benefits last week, the underlying trend in the data continued to point to some strength in the labor market.

Initial claims for state unemployment benefits increased 16,000 to a seasonally adjusted 326,000, the Labor Department said. The four-week moving average for new claims, which irons out week-to-week volatility, hovered near six-month lows, coming in at 319,500 claims. Claims have been generally stable in March, supporting expectations of additional acceleration in job growth during the month.

The government's closely watched employment report on Friday is expected to show nonfarm payrolls increased by 200,000 jobs last month after rising 175,000 in February, according to a Reuters survey of economists. The unemployment rate is seen falling one-tenth of a percentage point to 6.6 percent.