Stocks retreated Wednesday as a weak ADP report on the employment situation, and misses on both ISM services and factory orders offered a reminder that the economy isn't out of the woods.
The ADP report showed U.S. private employers shed 532,000 jobs in May, fewer than the upwardly revised 545,000 jobs lost in April, but more than 520,000 expected.
The report is widely seen as a precursor to the government's May jobs report, due out on Friday. Economists expect to see another 525,000 jobs dropped from nonfarm payrolls, after a loss of 539,000 in the previous month. The unemployment rate is expected to tick up to 9.2 percent from 8.9 percent.
The 10 a.m. numbers were a mixed bag: The ISM services index improved to 44 in May from 43.7 in April, but just missed expectations and was still below 50, indicating contraction.
Factory orders rose 0.7 percent in April, an improvement over the downwardly revised 1.9-percent drop in March but also shy of expectations.
And Fed Chairman Ben Bernanke warned that the rising U.S. debt is going to spike interest ratesand it's time to start reining in the deficit. He also said the economic erosion appears to be slowing, setting the stage for a recovery later this year.
Stocks eked out a gainon Tuesday following a sharp jump in pending-home sales.
But enthusiasm for the budding recovery in housing was tempered a 16-percent drop in mortgage applicationslast week, which was attributed to rising mortgage rates. The overnight average on a 30-year fixed mortgage was 5.36 percent, according to Bankrate.com.
Homebuilder stocks fell between 1 and 10 percent. Toll Brothers dropped more than 5 percent after the company posted a slightly wider loss than expected as revenue was cut in half from the same period a year ago.
The bullish attitude toward U.S. stocks appears to be losing steam.
Credit Suisse kept its projection for the Standard & Poor's 500 at 920 for the year, but took its equity rating down to "benchmark" from "overweight." The firm said surging Treasurys yields and a growing "scope for policy error" were dimming some of the allure for stocks.
"The recent rise in bond yields is worrisome—on our analysis, each 1 percent on ten-year yields takes 0.5 percent off GDP growth (and requires a 10 percent fall in house prices to leave affordability unchanged). We believe we are in an upward-sloping W-shaped recovery."
Financials continued to decline after a slew of stock offerings from the sector to raise money to pay back the government. In fact, $9 put options on the financial SPDR exchange-traded fund , essentially a bet that the gauge will fall, were the favorite play for options traders this morning.
Prudential Financial lost more than 3 percent after the insurer priced shares at $39 for a $1.25 billion share offering.
Meanwhile, the government's efforts to revive consumer and small-business lending got a boost in June as investors proved to be less wary of the TARP.
General Motors shares continued to slide ahead of a Senate hearing at 2:30 pm ET on U.S. automakers' plans to scrap agreements with more than 2,300 dealerships nationwide. GM CEO Fritz Henderson and Chrysler President Jim Press will testify.
Chrysler's asset sale to Italian automaker Fiat could hit the skids as a U.S. court of appeals agreed to hear a challenge against the deal.
Dow oil components ExxonMobil and Chevron skidded as oil prices dropped back below $68 a barrel after a report showed a surprise rise in crude stockpileslast week.
Shares of Cell Therapeutics jumped after the company on Monday announced positive test results of pixantrone in treating non-Hodgins lymphoma. The company also amended and restated a modified Dutch auction for $118.9 million of oustanding convertible notes.
Still to Come:
WEDNESDAY: Senate hearing on U.S. car dealerships; House hearing on Fannie/Freddie
THURSDAY: NY Fed Pres. Dudley speaks; Chain-store sales; ECB, BOE rate decisions; weekly jobless claims; Earnings from Ciena
FRIDAY: May jobs report; consumer credit
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