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Stocks Rally in Home Stretch but Close Mixed

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Stocks Rally in Home Stretch but Close Mixed

Stocks moved into the red in early morning trade after ADP released a stronger than expected private payroll. The October trade balance came in as expected with a 40.6 billion dollar deficit, which did not seem to move the market. After the ADP report, investors quickly started pricing in the potential for the Federal Reserve to taper their bond purchase program when they meeting in December. Although tapering is unlikely until March, the 10-year yield sliced through the 2.80% level, generating pressure on the equity markets. Mid-day the Dow was down more than 125 points by closed the session down only 25.

According to ADP private payrolls increased by 215K compared to the 176K expected by economists. Services jobs were the leader increasing by nearly 170K. Manufacturing jobs increased by 18K in November, while financial jobs grew at 5K. The October private payrolls were revised higher by 54K to 185K which was also stronger than expected. Futures immediately moved lower after ADP released its results which continued through the morning hours.

Somewhat offsetting the strong positive jobs data was news that Japan is preparing a $181 billion stimulus package. Japan has reportedly been putting together a stimulus package to offset the impact of a rise in sales tax that is due to take place in April. The government will use tax revenue to finance the spending and forgo raising new debt.

In corporate news, Microsoft (NASDAQ:MSFT) closed their $8 billion debt sale. Microsoft has raised $8 billion worth of debt, including 3.5 billion euros in euro-denominated bonds and $3.25 billion in dollar-denominated paper. Microsoft didn’t say much about what it plans to do with the proceeds, but buybacks are a good bet, which should drive the share price higher.

New home sales beat consensus expectations for October, improving to a 444K rate, but September’s figure (also released for the first time today due to the government shutdown) was “very weak” (354K) and August was also revised lower.

Separately, the ISM non-manufacturing index was weaker than consensus expectations, falling to 53.9, from 55.4. Most of the key components were lower than in the prior month, albeit still in positive territory. The employment index was down to 52.5, from 56.2, which is counter to earlier evidence from the ADP showing stronger hiring for November.

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