MarketView for March 5

Summary

The S&P 500 finished nearly unchanged on Wednesday, as the Street shrugged off soft data on jobs and the services sector while keeping an eye on developments in Ukraine. Wednesday also saw the S&P 500 index also reach an intraday record high of 1,876.53.

The market showed little reaction to the Federal Reserve's Beige Book, which said severe weather across much of the United States, took a toll on shopping and consumer spending in recent weeks. That led to slower economic growth or output in some areas of the country, according to the Fed's report of anecdotal information on the economy.

Data from payrolls processor ADP indicated that employers added fewer workers than expected in February. A report from the Institute for Supply Management showed the services sector continued to grow last month, albeit at a slower pace. A harsh winter has allowed traders to dismiss what appears to be a soft patch of data, making the market susceptible to a large pullback if the trend of weakness in data continues.

Meanwhile, investors were keeping a close eye on developments in the Ukraine, following the most serious confrontation between Russia and the West over influence in Kiev and control of Crimea. Investors' global flight to safety on Monday was reversed sharply on Tuesday. Markets were calmer on Wednesday, but volatility was expected, given the fluid situation in Ukraine.

The CBOE Volatility Index, Wall Street's fear gauge, fell 1.5 percent to close at 13.89.

The S&P financial sector index rose 0.7 percent and led the S&P 500's gainers. Bank of America gained 3.2 percent to close at $17.25. Morgan Stanley was up 2.8 percent to end the day at $31.97. The Nasdaq index closed slightly higher, outperforming the broader market. Facebook hit an all-time high of $71.97. The stock closed up 4 percent at $71.57. However, the Dow Jones industrial average slipped, led by losses in Exxon Mobil, down 2.8 percent at $93.80, and Nike, down 1.5 percent at $77.42.

Honeywell International saw its shares hit an all-time intraday high of $95.85 after the company set a target of increasing overall sales to more than $50 billion by 2018 as it spends $10 billion on acquisitions. Honeywell is a diversified manufacturer of aerospace parts and climate control and security systems. The stock ended the day at $94.66, up 0.06 percent.

Canadian Solar fell 10.7 percent to $39.02 after the solar panel maker warned of a decline in revenue this quarter as about $100 million in sales were deferred after a severe winter.

Smith & Wesson Holding was up 16.4 percent to $13.74 after the gun maker reported a 42 percent surge in its fiscal third-quarter earnings.

Approximately 6.52 billion shares changed hands on the major equity exchanges, as compared to the 7 billion average numbers of shares traded during the past month, according to data from BATS Global Markets.

It Is the Weather Says the Beige Book

Employers added fewer workers than expected in February and services sector growth hit a four-year low, the latest signs of the economic toll severe weather is taking. Another indication of the weather's impact came in the Federal Reserve's anecdotal Beige Book on Wednesday. The Fed described the economy's expansion in recent weeks as "modest to moderate," with bad weather causing a "slight" decline in activity in two of 12 districts.

Nonetheless, the consensus among the Street’s economists is that the economy's fundamentals are still sound, and that a string of mostly weak data would not dissuade the Fed from continuing to dial back its monetary stimulus.

A report from payrolls processor ADP showed private employment increased by a tepid 139,000 jobs last month. At the same time, private-sector jobs growth in January was revised down sharply to 127,000 from 175,000. Moody's Analytics, joint developers of the report, blamed harsh weather for last month's reading, which was below the 160,000 jobs that economists had expected.

The report came ahead of the government's comprehensive employment report on Friday and raised the prospect of a third straight month of sub-par nonfarm payrolls gains in February, though economists said the ADP data was not a good predictor.

In a separate report, the Institute for Supply Management (ISM) said its services sector index fell to 51.6 last month, the weakest reading since February 2010, from 54 in January. It blamed bad weather for the moderation in activity. Nonetheless, February marked the 50th month in a row the index was above 50, the level that separates expansion and contraction.

A sub-index of services sector employment contracted for the first time since December 2011 and recorded its worst reading in nearly four years.

A separate report on the services sector from financial data firm Markit also suggested activity slowed. In addition, Markit's gauge of services sector employment fell to an 11-month low.

The weather has complicated the Fed's task of determining the economy's likely path. Still, officials from Fed Chair Janet Yellen on down have shown little inclination to halt their plan to dial back the central bank's monthly bond purchases. Yellen told lawmakers last month that it would take a, "significant change" to the economy's prospects.

The Beige Book, which is based on reports from the Fed's business contacts around the nation, mentioned the word "weather" 119 times, while "snow" or a derivative of snow was used 24 times. The word "ice" appeared twice.

This winter has been colder than usual, with severe snowstorms affecting large parts of the Northeast, Midwest and Upper Midwest of the country, while the Southeast has experienced unusual ice storms in recent weeks as well.

The Fed's policy-setting committee meets on March 18-19.

Yellen Is Committed

Federal Reserve Chair Janet Yellen said on Wednesday she would do all that she can to increase economic growth that is running well short of the central bank's objectives.

"The economy continues to operate considerably short of these objectives" of maximum employment and stable prices, Yellen said according to prepared remarks at a swearing-in ceremony at the central bank in Washington.

"The economy is stronger and the financial system is sounder," added Yellen, who succeeded Ben Bernanke on February 1. "We have come a long way, but we have farther to go."

The brief comments were a broad reiteration of what she told two congressional committees last month: that the United States appears to be clawing its way back from the 2007-2009 recession but that the Fed is in no rush to tighten policy.

The world's biggest economy expanded at a decent 2.4 percent rate in the fourth quarter and has slowed this year due in part to severe weather. The unemployment rate is down to 6.6 percent, from a recessionary high of 10 percent in 2009, but it remains high and jobs growth is erratic.

The Fed targets 2 percent inflation and wants to see joblessness fall to around 5.5 percent.

"Too many Americans still can't find a job or are forced to work part-time," Yellen said on Wednesday, underscoring her long-standing focus on the troubled labor market.

"I promise to never forget the individual lives, experiences and challenges that lie behind the statistics we use to gauge the health of the economy," she said. "When we make progress toward our goals, each job that is created lifts this burden for someone who is better equipped to be a good parent, to build a stronger community, and to contribute to a more prosperous nation."

Turning to Wall Street reforms, Yellen said the Fed will move forward "quickly and responsibly" to complete the work that remains to safeguard the financial system.