The S&P lost its grip on the key 1,000 level Wednesday after data showed the economy's service sector contracted in July at a faster pace than June, heightening concerns about the strength of the recovery.
The Institute for Supply Management said its service sector index fell to 46.4 last month from 47.0 in June and was below economists' median forecast for a rise to 48.0.
The service sector accounts for about 80 percent of economic activity in the United States, includes banks, airlines, hotels and restaurants.
Investor sentiment was also hurt by word that job losses in the private sector were worse than expected, suggesting that the labor market remained persistently weak.
"People are not worried about the economic recovery but the strength of the recovery, and today's data on jobs and service sector came out weaker than expected," said Mark Bronzo, portfolio manager at Security Global Advisors in New York.
"We have been seeing incremental data improve, but what we really want to see to have this market strong is that the job market is getting better."
Instant Insights with the Fast Money trader
I think the ISM numbers are backward looking, muses Tim Seymour. 1,000 didn’t hold on the way down I see no reason why it has to hold on the way up.
1,000 is a psychological number; I don’t think the pullback is a big deal, adds Danielle Hughes of Divine Capital. In fact, the market needed to pullback. It's healthy.
P&G WEIGHS ON DOW
Shares of Procter & Gamble dragged down the Dow after the company posted an 18 percent drop in fourth-quarter profit as sales fell more than expected, even though it stood by its 2010 profit forecast.
P&G, which in recent months has touted itself as recession-resistant but not recession-proof, has lost some market share as consumers buy cheaper or private-label brands.
Sales fell in each of P&G's categories, with the biggest percentage decline a 17 percent drop in grooming.
What does the weakness mean?
To see P&G miss this badly was very disturbing, muses Dennis Gartman of the Gartman Letter.
I think P&G’s weakness has to be with rotation, adds Jon Najarian. Not necessarily rotation out of the stock but out of P&G products because they haven’t been terribly price competitive.
OPTIONS ACTION: BLACKSTONE
Jon Najarian has spotted unusually bullish options activity in Blackstone.
There’s also a fundamental story here, explains the Monster. The environment is hot for smart money managers, he explains, and Blackstone is a company that stands to benefit enormously right now.
OIL DOWN AS INVENTORIES BUILD INCREASES
Oil fell toward $70 a barrel on Wednesday after U.S. government inventory data showed a build in crude stocks and weak economic data raised doubts about demand for oil.
"The big build on crude caught some people by surprise and shows overall weakness in the economy and the unwinding of economic optimism. Nothing in the numbers was very bullish," explains Phil Flynn, analyst at PFGBest Research.
Meanwhile, Transocean and oilfield services firm Baker Hughes both reported unexpectedly weak results on Wednesday, spelling out how tough the slump has been on even the top end of the energy industry.
Transocean, the largest offshore rig contractor, reported a 24 percent drop in second-quarter profit as drilling by jackup rigs in shallower waters collapsed due to weaker oil and gas prices.
Chief Executive Bob Long said on a conference call with analysts he saw no signals that the market for the over-supplied jackup market would improve in the near term, including the rest of this year and next year
What’s the energy trade?
Until rig counts move higher, I’d stay away from oil services, counsels Dennis Gartman. Don’t go fishing here.
I agree, adds Jon Najarian. Personally I’m short. Wait for a pullback but I would be a buyer on a strong pullback.
TAKE YOUR POSITION: CISCO
Investors are eager to hear from Cisco on Wednesday. The maker of routers and networking gear is widely considered a barometer for corporate tech spending.
CEO John Chambers keeps describing the recession as a chance for the company to grab market share and expand into new categories.
And the stock has already been on a tear, rising from just above $18 on July 9 to more than $22 this week.
What’s the trade?
It seems investors expect Cisco to do fairly well, muses Danielle Hughes. But the question is whether they’re doing well because of the business cycle or because inventories have been cut back. I think it’s the latter.
GOLDMAN’S RECORD-BREAKING QTR
“Goldman Sachs said it made $100 million in trading revenue on a company record 46 separate days during the second quarter,” according to the Wall Street Journal.
“The New York-based investment bank said in a filing with the Securities and Exchange Commission that there were only two days in which it logged trading losses during the months of April, May and June. During the remainder of the quarter, Goldman made at least $50 million each day,” the paper says.
What’s the trade?
If you believe the tape is going higher, Goldman is a buy, counsels Guy Adami.
TRADE TO GO: POTASH
Tim Seymour suggests putting Potash on your radar with shares climbing after rival Agrium posted a better-than-expected second-quarter profits on strong sales of seed and crop protection chemicals.
I think Potash has value analysts have missed, says Tim Seymour. A break above $99 would be bullish.
CALL THE CLOSE
Tim Seymour: I think the market is going higher. Sit tight.
Jon Najarian: I think the market goes down.
Dennis Gartman: I’m a seller.
Danielle Hughes: I’m a seller
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Trader disclosure: On Aug 5th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns (MSFT), (RIMM), (JPM), (MS), (ABT), (MCD), (AMZN); Terranova Works For (VRTS); Terranova Is Short (TM), (WFC), (WYNN), (F); Finerman Owns (RIG); Finerman's Firm Owns (MSFT), (NOK), (PBR), (RIG), (PDE), (TBT), (WMT), (TGT); Finerman's Firm Is Short (USO), (IJR), (IYR), (IWM), (MDY), (SPY); Finerman's Firm And Finerman Own (BAC) Preferred Shares; Finerman's Firm And Finerman Own (WFC) Preferred Shares; Finerman's Firm Is Short (WFC); Finermna's Firm Is Long (WFMI) Puts; Najarian Owns (AET); Najarian Owns (BAC) Call Spread; Najarian Owns (BX) Call Spread; Najarian Owns (BUCY) & (BUCY) Call Spread; Najarian Owns (FCX) & (FCX) Call Spread; Najarian Owns (INTC) Call Spread; Najarian Owns (JPM) & (JPM) Call Spread; Najarian Owns (MS) & Short (MS) Calls; Najarian Owns (MSFT) & Short (MSFT) Calls; Najarian Owns (PALM) Call Spread; Najarian Owns (V) & Short (V) Calls; Najarian OWns (YHOO) Call Spread ; Najarian Owns (SYNA) Calls; Najarian Owns (CSCO) Call Spread; Najarian Owns (SWNA) Calls; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU)
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