US stocks clung to light gains on Tuesday after data pointed to a lessened risk of a September rate hike.
The closely-watched report from the Institute for Supply Management showed that the growth in the US services sector declined in August to the lowest level since February 2010.
The probability of a Sept 21 Fed rate hike has diminished to 24% from 32% on Friday, although that’s just based on the tradeable Federal funds rate. Rates could still be hiked if the FOMC determines that other factors are conducive.
There remain some hurdles. In the next two weeks at least four regional Fed Presidents are due to speak, plus retail sales and consumer prices data could provide further evidence for a hike, albeit are seen as secondary to last week's lame non-farm payrolls and Tuesday's ISM data.
So rather than euphoria, there was a measured cheer from the bourse as the market bellwether S&P 500 index closed up 0.3% at 2,186 and close to its mid-August record highs.
But smaller stocks didn’t fare so well. The S&P Midcap 400 was down 0.2% at 1,576 while the S&P Smallcap 600 ended down 0.2% at 760.
In spite of earlier weakness in Europe, the US oil benchmark West Texas Intermediate ended up 1% at $44.88.
Midsession
US stocks were firm at midsession on Tuesday, feeding off weaker data which fuelled expectations that a September rate hike may be dead in the water.
Growth in the vast US services sector fell to the lowest level in August since early 2010, adding fuel to concerns sparked by a surprise slowdown in the factory industry.
The Institute for Supply Management’s non-manufacturing purchasing managers’ index dropped to 51.4 last month, from 55.5 the month prior. Economists expected a slimmer fall to 54.9 Readings above 50 point to expansion, while those below indicate contraction.
The data came just days after another report from the ISM showed the factory sector unexpectedly halted a five-month expansion in August.
The implied odds of a September rate rise dropped to 20% on Tuesday, from 32% last Friday. Already bets were slipping for a rate hike after the US non-farm payrolls for August - a key rate hike indicator - last Friday came in weaker than forecast.
The S&P 500 index was up 0.1% at 2,182 and within a few points of the record high level struck in mid-August.
Buttressing the gains, oil prices edged higher at midsession. The WTI was up 0.1% to $44.50, with energy stocks dominating the riser board in the mid-cap and small-cap sectors.
However, the S&P Midcap 400 was down 0.3% at $1,573.69 and led lower by Minerals Technologies (NYSE:MTX) down 6% to $68.17. Earlier the company announced Joseph C. Muscari, Chairman and Chief Executive Officer, died unexpectedly on September 3. The Board of Directors has elected Duane R. Dunham, a Director of the company, to succeed Mr. Muscari as Chairman of the Board. The Board also named Douglas T. Dietrich, 47, and Thomas J. Meek, 59, Interim Co-Chief Executive Officers.
The S&P Smallcap 600 index was down 0.4% to 758, led lower by Tangoe Inc (NASDAQ:TNGO) down 9.9% to $8.85 on no fresh news.
Open
US shares have not exactly stormed back into the fray after the long weekend, although stocks are firmer on balance.
The benchmark S&P 500 index was up less than two points at 2,182 after around half an hour of trading.
That index’s baby brother, the S&P 400, which measures the performance of the mid-cap stocks, was off a couple of points at 1,577, while the Russell 2000, which is small cap-focused, edged a point higher to 1,253.
On Nasdaq, CoLucid Pharmaceuticals Inc (NASDAQ:CLCD) was the top performer, after it said its Phase 3 pivotal study evaluating its lasmiditan migraine tablets achieved both the primary and key secondary efficacy endpoints.
The study was the first of two Phase 3 pivotal trials of lasmiditan, each being conducted under a Special Protocol Assessment agreement with the US Food and Drug Administration.
Shares in CoLucid shot up 72% to US$18.285 on the news, surpassing the hefty 52% rise on Cepheid Inc (NASDAQ:CPHD), which headed for the moon after conglomerate Danaher Corporation (NYSE:DHR) announced an agreed bid.
In other bid news, Navidea Biopharmaceuticals Inc (NYSEMKT:NAVB) shot up 63% as it agreed to sell its Lymphoseek product to Cardinal Health Inc (NYSE:CAL).
Preview
US markets spring back to life today (Tuesday) after the Labor Day holiday on Monday and future trading is pointing to a higher start.
On Friday last week, after high dividend payers drove gains and low non-farm payrolls pointed to a possible delay in hiking US interest rates, shares held onto gains.
The Dow Jones closed 72 up at 18,491, while the Nasdaq added 22 on the day to finish at 5,240.
The broader based S&P 500 index closed 0.4% higher at 2,179. Mid-cap and small-cap stocks both registered fresh record highs – right at the close.
The S&P Midcap 400 advanced by 1% to 1,578 and the S&P Smallcap 600 ended at 761, up 1.2%.
In futures trading today, the Dow is seen opening 13 points to the good; the S&P500 is flat and the tech heavy Nasdaq is up just over four points.
It was with baited breath that investors awaited the non-farms last week, and job creation in August stood at 151,000, well below what had been forecast.
It has thrown a big doubt spanner in regarding whether the Fed will hike interest rates at the end of the month.
In oil, US crude had fallen further and is 0.65% down to US$44.15 a barrel. Gold is firm though - at US$1,388 an ounce - up 0.89%.