The major equity indices opened higher for the session despite some disappointing economic data released in the premarket hours. However, this was immediately negated once Fed Chair Janet Yellen publically stated that she believes that equity valuations are high and there are “potential dangers” in the non-bank lending sector. She also noted that open-ended mutual funds, and the potential liquidity risks the funds could face amid a wave of redemptions. Ultimately, she doesn’t see any bubbles forming, however she expressed that the Fed is keeping a close eye on everything. As if we should be surprised about that.

Despite these comments, the market made an attempt to reverse to the upside following the release of the Energy Information Administration’s (EIA) release on petroleum inventories. For the first time this year, weekly oil inventories declined, down 3.9 million barrels in the week ended May 1, 2015 for a total of 487.0 million barrels in stock. Imports of oil were down sharply for the week while refineries, which decreased gasoline production, cut back on demand. The price of oil was little changed following the report, hovering just around a multi-week high of $62 per barrel.

Domestically, there were a few noteworthy economic releases that led to the market’s early rally, however we are back to a similar situation where bad news means good news for the market out of fear that the Fed will raise interest rates too quickly. Firstly, ADP correctly signaled a disappointing employment report for March and it’s very likely to be déjà vu for April as well. For the month, it was noted that only 169,000 private payrolls were added in April, which was far below the consensus estimate of 205,000 and below the lowest economist estimate of 170,000. The revision for March was revised even lower by 14,000 to 175,000 – a telltale sign that the Bureau of Labor Statistics might very well revise March’s dismal reading lower too. Consensus’ expectation for Friday’s jobs number is 223,000 with 170,000 on the low-end. As the chart below shows, the ADP numbers have been on the decline since December 2014, but as the first estimate of the U.S. gross domestic product (GDP) showed, these dismal readings are wrought with severe winter effects.

Speaking of dismal economic activity in the first quarter, we learned of another factor that contributed to weak growth. In the first quarter, nonfarm productivity dropped by 1.9%, while inflated unit labor costs increased by 5.0%. Additionally, output as measured in this report dropped by 0.2% at the same time hours worked increased by 1.7% - all of this raises far more questions than answers regarding the labor situation. Adding to the overall labor costs was a sharp 3.1% increase in compensation which was up from 1.9% in the prior quarter and the strongest rate of wage growth since Q1-2014. However, on a year-over-year basis, productivity moved (just barely) into the positive column at +0.6% which labor costs much more mild at +1.1%. If Q2-2015 comes in much stronger than Q1 as many suspect, productivity ought to improve while labor costs should drop.