MarketView for May 2

Summary

The Dow Jones Industrial Average and the S&P 500 worked their way lower on Wednesday as data indicated that private sector hiring fell far more than expected in April, sparking concerns that Friday's jobs report will also disappoint.

An ADP report indicated that private employers added 119,000 jobs in April, well short of the 177,000 expected. That sparked market rumors that Friday's payrolls data will show that the economy added just 125,000 to 150,000 jobs last month.

The report came on the heels of more glum news from Europe. Euro zone factory activity contracted again last month, with the purchasing managers index, seen as a measure of how the economy will fare, falling to its lowest level since June 2009.

Energy was the worst performer among the 10 major S&P sectors, due in no small part to a 14.6 percent drop in the shares of Chesapeake Energy to $16.74. Chesapeake was the most actively traded stock on the Big Board, hit by disappointing quarterly results and as Reuters reported a new disclosure about business interests of the company's chairman.

For Chesapeake Energy, it was the company's busiest trading day ever, with 145.3 million shares changing hands across all exchanges. Chesapeake reported quarterly earnings that disappointed investors, and analysts pointed to higher-than-expected output of low-priced natural gas, even as the company sought to cut production.

Also, Reuters reported that Chesapeake's chairman and chief executive, Aubrey McClendon, ran a $200 million hedge fund on the side that traded in the same commodities Chesapeake produces. The company said Tuesday it would replace McClendon as chairman.

After the bell, shares of Green Mountain Coffee Roasters fell 40 percent. The company slashed its full-year sales forecast after demand for its K-Cup coffee refills fell well below Wall Street expectations.

Adding to the negative tone on Wednesday, new orders for factory goods in March recorded their largest decline in three years, even though they slightly topped forecasts.

Intel continued to march higher, hitting its highest point since 2004. Traders see continued flows into large-cap technology stocks as a bullish sign. Many investors consider Intel, which closed up 0.8 percent at $29.18, to be undervalued. 

Home builder shares were also higher on Wednesday. A good example came in the form of shares in Pulte Group, the second largest domestic homebuilder, which rose 2.4 percent to $10.27.

Traders cited an argument between two democratic congressmen and the Federal Housing Finance Agency on forgiving mortgage principal as a sign that calls for such measures could gain traction.

Among other companies reporting results, CVS Caremark rose 2.7 percent to $45.92 after the drugstore operator and pharmacy benefits manager posted a sharp rise in first-quarter sales and raised its earnings guidance.

American Eagle Outfitters was up 16.8 percent to $20.90 as the teen clothing retailer raised its profit forecast.

Of the 350 S&P 500 companies reporting results through Wednesday morning, 70 percent have topped analysts' estimates, according to Thomson Reuters data.

Ascena will buy Charming Shoppes in an all-cash deal. Charming ended the day up 23.9 percent to $7.31 as the most actively traded Nasdaq stock, while Ascena was up 10.4 percent to close at $21.06.

Approximately 6.4 billion shares changed hands on the three major equity exchanges, a number that was certainly below the daily average of around 6.76 billion shares.

Less Hiring According to ADP

According to an ADP National Employment Report released Wednesday morning, companies hired the fewest people in seven months during the month of April, a worrisome sign for a labor market that has struggled to gain traction and adding to concerns that the economy has lost some momentum.

The ADP report indicated that the private sector added 119,000 jobs last month, below economists' expectations for a gain of 177,000 jobs. The March figure was also revised lower.

The report comes two days before the government's broader and much-watched monthly jobs report.

Recent data, including softer labor market figures, have fueled fears that the economy may have lost some strength as the second quarter got under way. Those worries were partly offset by data from an industry group on Tuesday that showed a better-than-expected pick-up in the manufacturing sector last month.

However, government data on Wednesday showed new orders for factory goods suffered their biggest decline in three years in March as demand for transportation equipment and a range of other goods dried up.

Domestic economic growth has been seen as increasingly important to offset slack elsewhere in the world. The euro zone on Wednesday reported another contraction in its factory sector.

In China, factory activity contracted again in April, although at a slower rate, hinting at stabilization in the world's second-largest economy.

The day's data helped take U.S. stocks down about 0.5 percent in midday trading, while Treasuries prices rose and the euro fell against the dollar. Yet, despite the weak numbers in the ADP report on private-sector hiring, some analysts and economists were cautious on whether the data indicates a trend in the labor market.

In a conference call with journalists, Joel Prakken at Macroeconomic Advisers, which jointly develops the employment report with payrolls processor ADP, said the unusually warm winter months were partly to blame for the weakness in ADP report as employers had moved their hiring up to earlier in the year.

The evidence suggests private-sector employment was boosted by as much as 70,000 in the winter months, Prakken said.

"It does play into this notion that the numbers over the winter ... probably weren't quite as strong as the reports indicated, and this number today probably is not as soft as it appears on the surface," Prakken said on a conference call with journalists.

The manufacturing sector shed 5,000 jobs, the first loss since September of last year, the report showed. That was in contrast to data on Tuesday that showed a gauge of employment in the sector rose to its highest level since last June.