The stock market turned ugly this morning after an index from the windy city reported that business conditions were back in the red. An earlier report indicating that the labor market was worse than forecasts in September had laid the groundwork for the sell-off.
Within a few minutes all three indexes fell more than 1%, and by 11:30 the S&P 500 was down 0.77% to 1,052, the Dow was trading 0.77% lower to 9,671, while the Nasdaq was down 0.66% to 2,109.
However, shortly thereafter commodities prices began to rally and stocks bounced off a key technical support level, recovering almost all of the intraday losses.
As of 1:45 pm, the S&P 500 is down 0.12% to 1,059, the Dow is trading 0.02% lower to 9,740, and the Nasdaq is up 0.22% to 2,128.
Trading before the opening bell had been mixed. A rally in global equities has helped sentiment early on, but gains were pared after the release of the ADP private employment report.
ADP said 254,000 jobs were lost in September, including 103,000 in the services sector and 151,000 in the manufacturing sector. Forecasters were looking for a total decline of only 195k jobs, so the market shrunk from earlier gains as traders took a more cautious tone ahead of Friday’s officials numbers.
“The ADP employment data for September are consistent with the message of jobless claims that net job losses ― while still large ― are slowing,” said John Ryding and Conrad DeQuadros, economists from RDQ. “We continue to look for a 200,000 decline in total nonfarm payrolls in September.”
Fifteen minutes later, at 8:30, markets had reason to be a bit more optimistic as final revisions to second-quarter GDP were unexpectedly positive. Gross domestic product declined by 0.7% from April to June, compared with an original estimate of 1.0%.
“Overall the report suggests growth had slightly more upward momentum during the second quarter than we previously had thought,” said economists from Nomura Global Economics.
But any optimism in the morning was rapidly erased after the influential Business Barometer from ISM Chicago sank into contraction. The midwestern index dropped 3.9 points to 46.1 in September, resuming a 10-month trend that most forecasters had assumed was in the past.
“This was a very weak report, as the headline index could not manage to keep its head above the 50-threshold,” said Ian Pollick from TD Securities.
Many economists reduced their forecasts for Friday’s ISM manufacturing survey, one of the most closely-watched indicators available. Predictions could also be heading south for Friday’s official employment stats too, as the Chicago index scored a 38.8 score in the jobs component.
No more data is scheduled for today, but there’s plenty ahead in the rest of the week so investors will be trading heavily in anticipation of the results.