U.S. Stock Rally Fades Before Jobs Data Amid ECB Move

Attention Drawn Elsewhere as China Takes a Holiday

U.S. stocks closed little changed erasing a rally of nearly 200 points for the Dow Jones Industrial Average, as optimism over European Central Bank stimulus faded before the government’s monthly job report

The Standard & Poor’s 500 Index rose 0.1 percent to 1,951.09 at 4:03 p.m. in New York, after rising as much as 1.3 percent.

“There’s going to be caution not only going into the jobs report but into the long weekend,” said Tim Ghriskey, who helps oversee $1.5 billion including developing-nation stocks as managing director and chief investment officer at Solaris Asset Management. “Draghi threw a degree of caution on the markets, but now people are waiting for tomorrow, absolutely.”

ECB President Mario Draghi earlier unveiled a revamp of quantitative easing to allow for more purchases of each euro member’s debt as the weaker global outlook prompted a wholesale reduction of officials’ economic forecasts through 2017. Draghi said the emerging-market rout threatened global expansion and that consumer prices may barely grow this year.

ECB Action

The action by the ECB came as some temporary reassurance to investors who have been spooked by global growth concerns. China’s surprise currency devaluation on Aug. 11 sparked worries that the world’s second-largest economy was headed for a deeper slowdown, roiling markets around the world. Speculation that the Federal Reserve could raise interest rates as soon as this month, even as growth abroad slows, added to the anxiety.

“People are basically trading headline after headline right now, and Draghi’s comments about raising QE was good, but then you see deflation coming and cutting the GDP forecast and that’s not good,” said Larry Peruzzi, director of international trading at Cabrera Capital Markets LLC in Boston. “Deflation seeping into the markets is a little bit of concern, it eats away at profit margin and it gets to be a difficult downward cycle to break.”

A rally boosted by the ECB action faded in afternoon trading as investors’ attention turned to Friday’s August government non-farm payrolls report, a major data point before the Fed policy makers decide in two weeks whether to increase rates for the first time since 2006. Equities trading has been whipsawed by gains and losses this week as markets remain subject to sudden shifts in investor sentiment.

A report today showed filings for unemployment benefits rose more than forecast to an eight-week high, representing a pause in a trend of more muted firings. A separate gauge showed growth at service industries from retailers to restaurants hovered in August near the strongest in a decade.

“We’re setting up for tomorrow and I find myself wondering at this
point what’s good for the market,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $351 billion. “Is it better to have a good report or a bad report? It’s
confusing as to whether good news is good news anymore on Wall Street.”

Fed Watch

The central bank is likely to raise interest rates this month, which will trigger a rally in equities, Bank of America Corp. said in a report dated yesterday. “If they don’t hike, it’s an admission that Wall Street threatens to reverse the recovery on Main Street,” the firm said. Traders don’t agree, as they price in a 30 percent chance for a September increase, down from 38 percent at the end of last week, according to data compiled by Bloomberg.

U.S. stocks rallied yesterday after posting the third-worst decline of the year on Monday. September has historically been the weakest month for the S&P 500, with the index falling 1.1 percent on average, according to data compiled by Bloomberg going back to 1927. Leading into the month, the Dow Jones Industrial Average posted three separate single-day losses of more than 400 points in the last two weeks, a cluster of pain not seen since August 2011.

(Deletes incorrect sentence on oil markets in seventh paragraph.)
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