Jobs Data and Risk-Taking Are Playing Tug-of-War with the Dow Today

The Dow Jones Industrial Average (DJINDICES: ^DJI  )  has struggled to stay in positive territory on Wednesday, standing 16 points in the green by 1 p.m. EDT. Strong employment data from ADP was offset by weaker than expected May factory orders and talk of "increased risk-taking" by Federal Reserve Chairwoman Janet Yellen.

The ghosts of risk-taking past
Speaking at the International Monetary Fund, Yellen said that while the Fed sees areas of increased risk-taking, there is currently no need to change course of monetary policy. Yellen also noted the shortcomings of monetary policy, and conceded that today's low rate environment could spur some to take on greater risks. The problem is that investors may not recognize that these risks today could become substantial losses if the markets change direction. 

Federal Reserve Chair Janet Yellen

The fear of another economic shock still lingers in the minds of many investors, and the thought of another round of outsized risk-taking was enough to dampen the mood on Wall Street today. 

It's jobs week!
ADP had initially raised moods, releasing its precursor report to the government's jobs report, which is due out tomorrow. ADP reported that the economy added 281,000 private-sector jobs in June on a seasonally adjusted basis, led by 36,000 new jobs in the construction sector. Manufacturing gained 12,000 jobs.

ADP is a payroll management company that uses its customer base to approximate job growth in the broader economy. Economists use this report to project how the government report will look later in the week. As the chart below shows, the two reports align reasonably well.

ADP Change in Nonfarm Payrolls Chart

ADP Change in Nonfarm Payrolls data by YCharts.

A positive sign in the mergers and acquisitions business
Thomson Reuters this week released data on merger and acquisitions during the second quarter. An improvement in M&A is an indication that businesses feel more confident about the economy and are willing to invest in growth. 

Global M&A increased 75% year over year for the first half of the year, to $1.8 trillion. The increase was primarily driven by increased dollar sizes of deals, as the total number of transactions was only up slightly. This was the highest first half of a year since 2007. 

Higher volumes of M&A activities translate to higher fee income for banking institutions in the advisory business. Dow components Goldman Sachs (NYSE: GS  ) and JPMorgan Chase (NYSE: JPM  ) have been the perennial leaders for some time now. Goldman kept its spot as the top-producing M&A adviser for the first half of 2014, but JPMorgan fell to fifth place. 

The top spots in this report are, perhaps unsurprisingly, the who's who of megabanks: 

  1. Goldman Sachs
  2. Morgan Stanley
  3. Bank of America (NYSE: BAC  ) Merrill Lynch
  4. Citigroup (NYSE: C  )
  5. JPMorgan Chase

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