It was a choppy, mixed week for stocks last week and Friday's selling after a pop and drop reaction to the jobs report that took away some of the gains from earlier in the week. Small caps and the I-fund lagged with yields and the dollar rallying, but the S&P 500 and C-fund actually held up well and still have a nice gain in June. It is going to be a busy week for the stock market so buckle up!
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The jobs report had a nice big headline number for the market to react to, but it was really a mixed bag of conflicting data, as there was some weakness packed in the data, and it was a little inflationary, which is why yields and the dollar popped.
272,000 jobs were created in may, which was well above the 185,000 expected, however the unemployment rate moved up to 4%.
If you dug a little deeper, there were some issues in there as far as strength or weakness in the economy, or if it helps or hurts the chances of an interest rate cut from the Federal Reserve:
They revised the two prior month's numbers down slightly, which has almost become routine.
The survey of households used to compute the unemployment rate showed that the level of people who reported holding jobs fell by 408,000. How does that make sense with the 272,000 jobs gained?
Full-time workers declined by 625,000, while part-time positions increased by 286,000. That sounds like fewer jobs, not more.
But what sent yields up and the chances of a rate cut down was the higher than expected wage growth - rising 0.4% on the month and 4.1% from a year ago. Good for employees, bad for inflation and rate cuts.
The 10-year Treasury Yield popped on this data but it did stall at it's 50-day EMA. The question coming into this week is whether that area will get taken out or if it will continue to be an area of resistance.
The dollar also jumped and may have broken out on the data. This put pressure on the I-fund, which lost close to 1% on Friday.
There has been some positive developments in the economy as the Atlanta Fed, who had earlier lowered growth expectations for the 2nd quarter, just pushed their GDP estimate back up to 3.1% for Q2. That doesn't sound recessionary.
The weekly charts of the C and S-funds show two different stories. Before Friday, yields had been coming down sharply and you would think that would help the small caps out-perform, but the economic data has been showing signs of slowing, and that negatively impacts smaller companies more than the behemoth large cap tech stocks that steer the S&P 500.
The lower high on the S-fund chart is starting to look concerning.
Here's some interesting data from our friends at
sentimentrader.com. It basically shows that when the S&P 500 is up 5% or more through May 31, the market has an excellent chance of moving higher from June through December (1st column.) But the other columns show the draw downs that occurred during these next seven months. The 2nd column shows how far below the May 31 close the S&P went at some point between June and December, and the 3rd column shows how far the index came off the high made between January thru May.
Chart provided courtesy of
www.sentimentrader.com
There some surprisingly large negative numbers in there, and again most of those years ended positive despite those pullbacks. This tells me that those looking for buy may get a better opportunity this year, and those in stocks can either roll with the volatility, or try to take profits and jump back in later. It's not that easy to do, and it's a personal preference, of course.
Nvidia's 10 for 1 stock split took effect at the close on Friday so we'll see if that has any affect on the trading.
We get the all important CPI and PPI inflation reports on Wednesday and Thursday respectively, and there is an FOMC meeting with a decision on interest rates on Wednesday. The Fed is not expected to move rates at this meeting, but they should provide clues as to which way they are leaning, so it could be a market mover.
The S&P 500 (C-fund) broke out above resistance temporarily on Friday after the mixed bag jobs report. It may be a failed breakout but so far the bears have not shown any fortitude to aggressively sell up here although, without big tech to keep them afloat, they have been selling the small caps. The charts are giving us some clues, but it's a big week for economic data and the Fed, and sometimes the charts will bust through support or resistance on emotional trading before we know which way they want to go once the dust settles.
DWCPF (S-fund) failed at resistance last week and remains in a descending channel, after breaking below the rising support a couple of weeks ago. This has some work to do and perhaps the data this week will help it break the downtrend, but as of now it appears traders are selling rallies.
The EFA (I-fund) took a big hit on Friday after the dollar rallied on the jobs report. Will that rally in the UUP hold because, as I talked about above, the jobs report wasn't as strong as the top number suggested, but the inflationary aspects of it could be steering the ship.
BND (bonds / F-fund) plummeted with yields rallying and the chart has started a double top pullback. It was probably due as there were several open gaps below, so we'll have to see if there's any dip buyers on this bond market weakness.
Thanks so much for reading! We'll see you back here tomorrow.
Tom Crowley
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