Market Recap: Cautious FOMC Minutes Give Bulls Pause

Stocks explored the black for a fourth straight session today, as the government's highly anticipated employment figures were received with a collective sigh of relief. According to the Labor Department, nonfarm payrolls declined by 54,000 in August – much narrower than the 110,000 drop predicted by economists. Excluding census workers and other government employees, the private sector added 67,000 jobs last month, more than doubling forecasts for a gain of 30,000. Against this backdrop, the Street spent the session in celebration mode – in fact, not even a discouraging report on the services sector could rain on the bulls' parade – with the major market indexes effectively halting a three-week losing streak.

"Another day, another better-than-expected economic report," observed Senior Technical Strategist Ryan Detrick. "Let's hope that the recent data can quiet the double-dip crowd, at least for a while," he added. Looking ahead, Detrick notes that we're "entering earnings warning season, but the next big driver for the market will be third-quarter earnings next month."

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Stocks spent most of the session just north of breakeven today, as the Street's initial reaction to relatively upbeat retail and economic reports was somewhat muted ahead of tomorrow's highly anticipated nonfarm payrolls report. On the retail front, the back-to-school shopping season boded well for many major retailers, with heavyweights like Costco (COST) and Nordstrom, Inc. (JWN) recording stronger-than-expected sales in August. Meanwhile, a second straight dip in weekly jobless claims, as well as a surprise increase in pending home sales last month, helped to overshadow a slimmer-than-anticipated rise in July factory orders. Against this backdrop, the bulls emerged from the sidelines as the afternoon progressed, with the major market indexes settling at session highs.

"Looks like the shorts didn't want to make much of a push into the close, as the market found a nice bid late in the session," observed Senior Technical Strategist Ryan Detrick. "So far, September has been very kind to stocks," he added, "but with the always-important monthly jobs numbers out tomorrow, that could change in a hurry."

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It was an unusually bloody August for the stock market, but traders seemed determined to make up for lost ground today. Stocks bolted higher right out of the gate this morning, as upbeat economic data from China and Australia inspired an optimistic mood ahead of the open. Traders also cheered the latest manufacturing data from the Institute for Supply Management (ISM), which reported that its index of factory activity improved to 56.3 in August. By midday, the Dow Jones Industrial Average (DJIA) was sitting on a robust gain of well over 200 points -- which might seem overly enthusiastic, with Friday's key nonfarm payrolls report still on tap. However, with the major market indexes settling yesterday near key round-number support at the low end of their recent trading ranges, the bulls opted to buy first, and ask questions later.

"Let me get this right," said Senior Technical Strategist Ryan Detrick. "We rallied this morning because of strong data out of China... but China was actually lower on the day? Anyway," he continued, "the economic data from around the globe was strong enough to fend off the apocalypse for at least one more day. Given the extremely negative overall sentiment, if we can get any more good news -- this rally could have some legs to it."

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The month of August wrapped up in chaotic fashion today, with stocks rocketing back and forth across the breakeven line throughout the session. With no major earnings reports on tap today -- and merger-and-acquisition activity continuing at its new-normal clip -- traders took their cues from a mixed bag of economic data. Chicago-area manufacturing activity slumped in August, falling in line with expectations, but early losses inspired by that report were quickly erased by more upbeat data on home prices and consumer confidence. But what the Conference Board giveth, the Fed taketh away: After the minutes from the latest Federal Open Market Committee (FOMC) hit the Street, stocks quickly surrendered their modest gains. The notes revealed dissension among the ranks in the policy-setting group, with some members arguing for more supportive measures in light of a deteriorating economic recovery. Thanks to this fresh dose of uncertainty, the major market indexes finished the day -- and the month of August -- with a whimper. By the close, all three of the major market indexes had turned in their worst August performance since 2001, and their first negative August in five years.

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The major market indexes stair-stepped lower throughout the merger-and-acquisition-marked session today, as the Street interpreted the latest round of economic data as a sign the proverbial glass is half empty. While the Commerce Department said personal spending climbed 0.4% in July – more than the expected rise of 0.3% – the figures were quickly overshadowed by discouraging personal income data. More specifically, the government said personal income rose only 0.2% last month, falling short of economists' prediction for 0.3% growth, and leading many to believe that the jump in spending is only temporary. Furthermore, the disappointing results loomed even more ominously ahead of Uncle Sam's highly anticipated employment figures for August, which are set to hit the Street on Friday. Against this backdrop, stocks extended their retreat through the final hour of trading, with the Dow Jones Industrial Average (DJIA) harboring a triple-digit deficit by the time the closing bell mercifully rang.

"In what is going to be a busy week on the economic-data front, today's sell-off is rather disappointing, as it continues to show the bulls can find no consistent buyers," noted Senior Technical Strategist Ryan Detrick.

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After a brief trip into the red this morning, stocks eventually powered higher thanks to reassuring remarks from Federal Reserve Chairman Ben Bernanke. At a conference in Jackson Hole, Wyo., the central banker pledged to do whatever's necessary to resurrect the U.S. economy, should "unexpected developments" stifle the recovery. The promise did more than just pacify the Street, with investors essentially shrugging off a downwardly revised forecast from Intel Corp. (INTC) and another 787 Dreamliner delay from fellow blue chip Boeing Company (BA). What's more, the bulls even triumphed despite a Commerce Department report showing second-quarter gross domestic product rose at a slower pace than previously estimated, with the major market indexes paring the majority of their weekly deficits by the close.

Further reflecting investors' revived appetite for riskier assets was the action in the bond markets, according to Senior Technical Strategist Ryan Detrick, who noted the heftiest single-session drop for the iShares Barclays 20+ Year Treasury Bond (TLT) exchange-traded fund in over a year. "Proving we all can't win all the time, it was a great day for stocks, but a horrible day for bonds. The risk trade was off for the day, as money came running out of the safety play and into risky assets," he said.

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Today's market action was an eerie reversal of Wednesday's pattern. Yesterday, a negative housing report sparked early losses -- which were then erased by an afternoon wave of bargain-hunting. Unfortunately, traders seem to have misplaced their rose-colored glasses overnight: Stocks started off on strong footing today after a surprisingly large drop in weekly jobless claims, but lingering economic anxieties pressured the major market indexes into negative territory by the time midday rolled around. In particular, a bit of bad news from the Kansas City Fed seems to have sparked the sudden shift in sentiment; the region's manufacturing index dwindled to zero in August, down substantially from July's reading of 14. As a result, the major market indexes reversed course from respectable gains to modest daily losses -- and the Dow Jones Industrial Average (DJIA) settled south of the key 10,000 mark.

If traders seem unusually skittish this week, it's probably due to a pair of highly anticipated economic reports hitting the Street Friday, says Senior Technical Strategist Ryan Detrick. "Between the revised GDP number and Federal Reserve Chairman Ben Bernanke's scheduled speech on the economy, no one was willing to make a big bet today," noted Detrick.

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Bright and early this morning, the stage was set for another sell-off. Fresh on the heels of Tuesday's gruesome existing-home sales plunge, traders learned today that new home sales plummeted to an all-time low in July. Sales for the month sank 12.4% to a seasonally adjusted snail's pace of 276,000, falling well short of economists' expectations. And as if that weren't enough negative news for one morning, U.S. durable goods orders improved by a slimmer-than-forecast 0.3% in July. Stocks spiraled lower right out of the gate as traders panned this latest round of downbeat data... but a strange thing happened between lunchtime and the closing bell. After four straight days of losses, stocks finally dipped low enough to lure in some bargain hunters. By the time 3 p.m. rolled around, the major market indexes were cautiously exploring positive ground -- and the bulls proved their mettle by keeping stocks afloat right through the close.

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The major market indexes finished just a hair's breadth below key support levels on Monday -- and this ominous technical development proved to be a harbinger of more pain to come. Wall Street learned this morning that existing home sales plunged 27.2% in July, marking their largest-ever monthly decline. Meanwhile, inventories of unsold homes swelled to 3.98 million in July, representing the largest stockpile in more than a decade. Bears took this negative news and ran with it, sending the Dow Jones Industrial Average (DJIA) to a triple-digit loss right out of the gate. In fact, the Dow briefly dipped below 10,000 in morning trading, marking its first foray below this key round-number region since July 7.

With fresh cause for economic concern each week, says Senior Technical Strategist Ryan Detrick, "investors continue to move toward the safety of bonds. In fact, the 10-year yield moved to its lowest level since early 2009."

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If you were keeping an eye on the market last week, today's action had an eerily familiar ring to it. A flurry of merger-and-acquisition activity translated to early gains, but enthusiasm over Wall Street's renewed appetite for dealmaking quickly gave way to lingering economic concerns. There were no major data points on the docket today -- but with key reports on the housing market and second-quarter gross domestic product due out later this week, traders erred on the side of caution. Despite ramped-up bidding wars for 3Par (PAR) and Potash Corp. of Saskatchewan (POT), stocks were struggling to stay above the breakeven line by midday. By the close, all three major market indexes had given back their early gains to finish narrowly below short-term support levels -- opening the door for either an oversold bounce or a fresh wave of selling pressure on Tuesday.

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