NEW YORK (TheStreet) -- Is good economic news now bad for stocks? That's a question StockTwits' investors grappled with Monday after two economic reports showed better-than-expected growth in the service industry, yet the market barely responded.
The Institute for Supply Management said Monday that its non-manufacturing index rose to a six month high in April. The Index reading climbed to 55.2%, better than the roughly 54% economists expected, according to separate Bloomberg and MarketWatch polls.
April ISM Non-Manufacturing Index: 55.2 vs. 54.1 expected and 53.1 prior
- Tradespoon (@tradespoon) May. 5 at 10:52 AM
MarkIt's purchasing manager's index for the service sector also beat expectations. PMI hit 55 in April. Economists had expected 54.2, according to a Bloomberg poll before the release.
Despite the solid reports, the major indices hovered near flat with many slipping, slightly, into the red. The S&P 500 and Dow each wavered between 0.09% losses and 0.01% gains. The Nasdaq edged higher by noon.
Some on StockTwits.com said strong data was bearish for the stock market. Better U.S. economic performance, they argued, could lead the Federal Reserve to end fiscal accommodation earlier than anticipated, allowing the benchmark interest rate to rise. Rising interest rates would increase the attractiveness of bonds relative to stocks and, potentially, make it more difficult for companies to borrow money, thus hampering corporate earnings growth.
The ISM so darn good, perhaps QE ends early, Int Rates rise earlier?- BL834 (@Lach14) May. 5 at 10:04 AM
$SPY Good ISM #'s mean economy better and higher rates around the corner!!! hence the big money sells- Mark M (@Mech) May. 5 at 10:49 AM
Others argued that investors reacted to the slowdown in services growth from the prior month. MarkIt's PMI figure was slightly lower than March's reading.
$SPY PMI Services data 55.0 vs prior 55.3. ISM Services data 55.2 vs 53.1 Name your poison.- Dave Fry (@etfdigest) May. 5 at 11:06 AM
To be sure, the economic reports were not the only headlines traders weighed midday Monday. On the positive side, analysts came out largely in favor of the mobile gaming sector and King Digital (KING), this morning.
On the negative side, Citigroup (C), fell after the Wall Street Journal reported over the weekend that federal prosecutors investigated its Banamex subsidiary in Mexico for fraud. Some see the Banamex fraud, which Citigroup says cost about $165 million in the first quarter, as evidence that banks are not as good controlling their risks as they claim. Citigroup's news came in the wake of Bank of America's (BAC), suspension of its capital plans due to an accounting error.
Target (T), also tumbled after CEO Gregg Steinhafel resigned amidst continued problems from the company's December data break that exposed tens of millions of customers' credit and debit card information to hackers.
At the time of publication the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.