ADP jobs surprise provides pre-opening boost

Kevin Pendley | Jul 30, 2008 9:02am EDT | Comment

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Small-cap stocks are expected to open higher, underpinned by surprisingly stout employment figures on this morning’s ADP Employment Report. The Russell 2000 (NYSE:IWM) was up about 0.3% in after-hours trading, which suggests an open near 716.50.

The ADP headline figure for non-farm payrolls came in at plus 9,000 jobs, which was a big surprise over the projection for a decline of 58,000 jobs. The immediate market response to the ADP report was a rally in the U.S. dollar, a decline in Treasury futures and a four-handle upside pop in S&P 500 futures. Although the ADP report has been less accurate in forecasting the Labor Department’s monthly employment release over the last year, the move into a positive number should provide a little more optimism about the employment picture heading into Friday’s big report.

Also on the data front, the MBA Mortgage Applications Survey came out this morning and was down 14.1 to the lowest level since December 2001. The combination of weak home sales and slumping home equity continue to take a toll on mortgage applications.

Crude oil futures were hovering near $122 dollars a barrel this morning, down just a tad from Tuesday’s close and basically marking time ahead of the weekly inventory report later this morning, which is expected to show a 200,000-barrel build in stocks.

Looking at a short-term chart for the Russell 2000, the market is poised to open through initial resistance near 715, which will leave the next key upside tests at 720 and 726. On the downside, short-term support today is at 707.50 and 701. The market broke out above minor trendline resistance from the recent highs on Tuesday’s rally, but is still under the shadow of intermediate trendline resistance from the June peak.

Large-cap stocks in the headlines this morning include Elan Corp. (NYSE:ELN) and Wyeth (NYSE:WYE), both of which tumbled double digits in overnight trading on news that an Alzheimer’s drug has a potentially serious side effect. Merrill Lynch (NYSE:MER) was supported overnight by an analyst upgrade, but OfficeMax Inc. (NYSE:OMX) took a big hit when earnings disappointed. On the small-cap front, Buffalo Wild Wings Inc. (Nasdaq:BWLD) reported strong earnings and was up some 15% in after-hours trading.