MarketView for June 4

Summary

The major equity indexes moved up a bit on Wednesday with the S&P 500 index ending at a new record high as the Street paid little attention to some weaker-than-expected labor market data and focused on an acceleration in services-sector growth.

However, trading volume was light as many took a wait-and-see approach ahead of the European Central Bank policy meeting on Thursday and the U.S. government's May nonfarm payrolls report on Friday. Such a position ahead of the latter is generally normal operating procedure.

The Institute for Supply Management's non-manufacturing index indicated that the growth in the services sector accelerated more than expected in May and rose at the fastest pace in nine months. The ADP National Employment Report showed that fewer private-sector jobs were added in May than had been anticipated.

Among the day's largest gainers were solar companies after the United States slapped new import duties on solar panels and other related products from China. First Solar ended the day up 3.9 percent to close at $65.39.

Semiconductor stocks also ranked among the market's leaders with Skyworks Solutions up 2.4 percent at $46.76 and Broadcom up 3.3 percent at $37.07.

The CBOE Volatility Index was up 1.8 percent to end the day at 12.08, its third straight daily advance. However, the index is still well below the historical average of 20, a trend that some interpret as a sign that investors have become complacent.

In company news, Protective Life rose 18.1 percent to $69.36 in heavy trading after Japan's Dai-ichi Life Insurance agreed to buy the company for $5.7 billion.

The stock of Tibco Software was one of the Nasdaq's most active issues, falling 5.4 percent to $19.66 a day after the company gave a second-quarter outlook sharply below expectations.

NQ Mobile was up 30.9 percent to $9.99, its largest one-day advance ever, rising on heavy volume after the Chinese mobile security software maker said a special committee had found no evidence of fraud, following an accusation made by short-seller Muddy Waters Research Group.

Trading volume was light with approximately 5 billion shares changing hands on the major exchanges, a number that was below last month's average of 5.75 billion shares, according to data from BATS Global Markets.

Data Still Points to a Growing Economy

Companies hired far fewer workers than expected in May, but an acceleration in services sector growth supported views the economy was regaining strength after sagging early this year.

While other data on Wednesday suggested a widening trade gap could weigh on growth in the second quarter, a jump in imports pointed to a welcome pick-up in domestic demand.

Private employers added 179,000 jobs to their payrolls last month after hiring 215,000 workers in April, according to payrolls processor ADP.

The Institute for Supply Management said its services sector index rose to 56.3 last month from 55.2 in April as new orders, order backlogs and hiring increased. It was the highest reading in nine months. The reading underscored the economy's strengthening fundamentals. Any reading above 50 indicates an expansion.

The firming economic tone was highlighted by the Federal Reserve's anecdotal Beige Book. Reports from the central bank's contacts indicated activity expanded in recent weeks.

The Commerce Department said the trade gap increased 6.9 percent to $47.2 billion in April as imports hit a record high and exports slipped. It was the largest deficit in two years. When adjusted for inflation, the trade deficit increased to $53.8 billion from $50.9 billion in March, suggesting trade, which weighed heavily on growth in the first three months of the year, will remain a drag in the second quarter.

Ample signs have accumulated that indicate a rebounding economy this quarter, although growth may fall short of the 3.5 percent rate anticipated given the unexpectedly heavy demand for imports in April. Imports subtract from growth because they are produced in other countries.

Goldman Sachs cut its second-quarter GDP growth estimate by four-tenths of a percentage point to a 3.4 percent rate, while Morgan Stanley slashed its forecast to a 3.5 percent rate from 4.0 percent and Barclays trimmed its estimate by one-tenth to 2.9 percent.

However, the 1.2 percent increase in imports also indicated domestic demand was bouncing back. Automobile, capital goods, food and consumer goods imports hit record highs in April. The trade deficit with the European Union was the largest on record, as was the gap with the EU's biggest economy, Germany. Imports from South Korea also touched a record high. Chinese imports rose 16.3 percent, pushing the politically sensitive trade gap with China to $27.3 billion from $20.4 billion.