Strong Payroll Report Spooks the Market

The Dow Jones Industrial Average (Dow) lost 1.52%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 1.52%, the Standard & Poor’s 500® Index (S&P 500) finished off 1.58% and the NASDAQ Composite Index (NASDAQ) shed 0.73%.

March 09, 2015    |    By Mike Schwager

Performance for Week Ending 3/6/2015:

The Dow Jones Industrial Average (Dow) lost 1.52%, the Wilshire 5000 Total Market IndexSM (Wilshire 5000SM) fell 1.52%, the Standard & Poor’s 500® Index (S&P 500) finished off 1.58% and the NASDAQ Composite Index (NASDAQ) shed 0.73%. Sector breadth was negative with all 10 of the S&P sector groups finishing lower. The Utilities sector (-4.16%) led the way lower followed by Energy (-2.92%) and Telecom (-2.80%).

Index* Closing Price 3/6/2015 Percentage Change for Week Ending 3/6/2015 Year-to-Date Percentage Change Through 3/6/2015





Wilshire 5000




S&P 500








*See below for Index Definitions

MARKET OBSERVATIONS: 3/2/15-3/6/2015

The major market indices finished the week lower as a general lack of catalysts and caution ahead of the Payroll report kept many investors tethered to the sidelines during the early half of the week. The actual release of the payroll data on Friday was met with widespread selling pressure, as the better than expected report raised fears that the Federal Reserve (Fed) could raise rates sooner than the market has been anticipating.

Payroll Report (Good News is Bad News):
On Friday, the Labor Department reported that Nonfarm Payrolls rose by 295K, well ahead of the 235K expected by economists. The strong gains in February marked the twelfth straight month of 200K-plus job creation. The unemployment rate fell to 5.5% (from 5.7%) and now stands within the range that the Fed considers “full employment” (i.e. 5.2% – 5.5%).  Wage growth, however was disappointing, as average hourly earnings rose 0.1% month-on-month in February and by 2% on a year over year basis. Overall the report indicates that labor market conditions continue to improve.

While the bulk of the payroll data was much better than anticipated, the reaction to the report was a downdraft in equity prices. The market seems to have morphed into a phase where good news is bad news. In other words, the stronger than expected jobs report could potentially lead to a sooner than expected “lift-off” by the Federal Reserve. Expectations are also rising that the “patient” phrase could be removed from the Federal Open Market Committee (FOMC) statement at the upcoming (March 17/18) Fed meeting. The removal of “patient” doesn’t necessarily mean a June lift off is a sure thing. At the recent Humphrey-Hawkins testimony, Fed Chair Yellen underscored that “a modification of the forward guidance should not be read as an indication that the Committee will necessarily increase the target range in a couple of meetings.” The Fed has a dual mandate—stable prices and full employment—and at this juncture, only one of those mandates has been achieved. With inflation trending well below the Fed’s target rate of 2% and wage growth seemingly weak, the Fed still has the option to be patient.

Economic Roundup:
Outside of the Payroll report, last week’s batch of economic data was generally a mixed bag. On the manufacturing front, the Institute for Supply Management (ISM) reported that manufacturing activity expanded at a slower pace in February. The ISM manufacturing index dropped to 52.9 from 53.5 in January (readings above 50 signal expansion). The latest reading was the slowest in over a year. Elsewhere, the Labor Department reported that initial jobless claims during the week ended February 28 rose 7K to 320K. Results were higher than the 295K forecast by economists. The 4-week moving average—which helps smooth the week to week volatility—rose to 305K during the period, the highest level since mid-January. On a positive note, the ISM reported that its non-manufacturing (services) rose to 56.9 in February, its highest level since October.

Beige Book – Better than Neutral:
The Federal Reserve released the Beige Book report last week. The report, which compiles snapshots of business conditions in each of the 12 Fed bank districts, showed economic activity continued to expand across most of the country amid broad-based hiring and rising consumer spending. The report showed that eight of twelve districts reported "moderate" or "modest" expansion in economic activity, although adverse weather conditions during the period weighed on construction activity and sales of residential real estate. The labor market assessment was positive, with job gains seen across many sectors. Wage pressures were "moderate," with some areas of firming among skilled workers, while price pressures (inflation) were very modest.

ECB – Details QE Program:
European Central Bank (ECB) President Mario Draghi highlighted some of the details to the pending QE program on Thursday. According to Draghi, the bond buying program will begin on Monday March 9 with the central bank buying EUR60 billion of assets a month through September 2016. Draghi did note that the program could continue beyond September 2016 “if needed.”  Draghi also raised the ECB’s economic outlook for the Eurozone. The ECB now sees 2015 GDP growth of 1.5% (up from the prior estimate of 1%) and 2016 growth of 1.9% (up from 1.5%). Growth in 2017 is estimated at 2.1%.

The Week Ahead:
After a busy couple weeks, data flow will slow a bit during the upcoming week. The focal point of the economic calendar will be Thursday’s report on Retail Sales. After a surprisingly sharp decline in January, economists expect February sales to show a modest rebound. Other reports of interest include the Job Openings and Labor Turnover Survey (a favorite of Fed Chair Yellen), the February Producer Price Index, and the preliminary March University of Michigan consumer sentiment survey. Fourth quarter earnings season is pretty much wrapped up with only two members of the S&P 500 scheduled to report results. In observance of the traditional blackout period ahead of FOMC meetings, the Fed speaking calendar will be very light with only Cleveland Fed President Loretta Mester scheduled to speak on Monday.


The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market IndexSM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm’s headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor’s 500® Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

Producer Price Index- PPI- is a family of indexes that measures the average change in selling prices received by domestic producers of goods and services over time. PPIs measure price change from the perspective of the seller.

The Michigan Consumer Sentiment Index – MCSI is a survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy.

Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

Past performance is no guarantee of future results. Indices do not include any expenses, fees, or sales charges, which would lower performance. Indices are unmanaged and should not be considered an investment. It is not possible to invest directly in an index.

The individual companies mentioned in this piece were for informational purposes only and should not be viewed as recommendations.

The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. This document contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Information in this report does not pertain to any investment product and is not a solicitation for any product. This material has been prepared using sources of information generally believed to be reliable. No representation can be made as to its accuracy.


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