Last week was “bull market action” – sideways action to digest and then the grind continues higher. Monday was a holiday, while Tuesday and Wednesday saw almost no movement in the major indexes, and then Thursday and Friday brought a nice steady uptrend. Bears remain lost at sea. For the month of May, the S&P 500 gained 1.2% while the NASDAQ surged 2.5%. The Dow was only up 0.3%.
In economic news, on Wednesday the Chicago PMI rose to 59.4 in May, its highest level in 2½ years. The Federal Reserve’s Beige Book said the economy is still growing at a “modest or moderate” pace, appearing to support a June rate increase. On Thursday ISM manufacturing edged up a 10th of a point to 54.9, about even with expectations. But construction spending sagged in April as a strong start to the year started to falter.
Friday was the big economic data point as May nonfarm payrolls data showed the economy added 138,000 jobs last month, coming in below Wall Street economists’ forecasts. The details of the jobs report were also weaker than expected. The number of job gains for April and March were revised lower. The unemployment rate slipped to 4.3% but the decline was largely due to shrinking labor force. Average wages rose 0.2% to $26.22 an hour, in line with expectations.
In the first five months of 2017, the U.S. has added an average of 162,000 jobs a month. That’s down from 187,000 in 2016 and as many as 250,000 a month in 2014, a post recession high.
“This is undoubtedly a weak jobs report, especially with downward revisions. But it’s just one data point that will not change the Fed’s course, which is to raise rates at its June meeting,” said Michael Antonelli, equity sales trader at Robert W. Baird & Co. “Nonfarm payrolls month-to-month is a very jumpy number and a one-off weakness should not be seen as a beginning of a trend. For example, we’ve had a very poor print in May 2016, with 43,000 jobs. Since then, the S&P 500 is up about 400 points,” Antonelli said.
Fed fund futures are pricing in a 91% probability of a rate increase this month, according to the CME FedWatch tool.
Speaking of employment, some companies cannot find enough workers who can pass drug screening.
Workers at McLane drive forklifts and load hefty boxes into trucks. The grocery supplier, which runs a warehouse in Colorado, needs people who will stay alert — but prospective hires keep failing drug screens. “Some weeks this year, 90 percent of applicants would test positive for something,” ruling them out for the job, said Laura Stephens, a human resources manager for the company in Denver.
Job applicants are testing positive for marijuana, cocaine, amphetamine and heroin at the highest rate in 12 years, according to a new report from Quest Diagnostics, a clinical lab that follows national employment trends.
Here is the 5 day weekly “intraday” chart of the S&P 500 per Jill Mislinski.
Not a massive move for the week but it’s quite rare to see a stock surpass $1000 so let’s highlight Amazon.com (AMZN) this week!
Speaking of a fascinating chart, here is one of the massive and growing influence of the “5 horsemen” of the NASDAQ 100 per Reuters.
“June historically has been a weak month for equities, but the catch is some of the worst drops have taken place when the S&P 500 index was beneath its 200-day moving average to start the month. When the S&P 500 has been in a bullish trend—above this long-term trendline—June has been higher 59% of the time versus 33% when starting below,” Detrick wrote in a recent note.
The week ahead…
The first week of the month is the main one of interest for economic reports but because last week was holiday shortened, we do get ISM non manufacturing out Monday… but right now the market just doesn’t seem to care much about “details” such as this. The rest of the week will be quiet from a “move the market” data point standpoint.
Outside of the U.S. market itself we have former FBI director James Comey’s testimony in D.C. and the U.K. election; also out there is the ECB monetary policy meeting.
“The Comey testimony appears to be the second act in the latest drama on Capitol Hill and we think this installment only makes the road that much longer to meaningful tax reform and fiscal stimulus,” Charlie Ripley, investment strategist at Allianz Investment Management, told MarketWatch.
Short term: Breakout on the S&P 500 and NASDAQ. ‘Nuff said.
The Russell 2000 somehow can’t get out of this yellow box still.
The NYSE McClellan Oscillator is in week 2 of the black, so a feather in the cap of bulls.
Long term: Here are 5 year charts on the major indexes; we are a broken record here but it would take a very severe selloff to change prospects here. Hot hot hot.
Charts of interest / Big Movers:
In the energy sector Tuesday, Atwood Oceanics (ATW) was acquired by Ensco.
It was a week. Therefore a retailer had to take a tumble. Wednesday it was Michael Kors (KORS) finished down 8.5% after the maker of high-end accessories and clothing posted a loss for its fiscal fourth quarter and spoke of a challenging market. Thursday, Express (EXPR) tanked 19% after the clothing chain missed first-quarter earnings and revenue estimates. Next week will be another week – and you can guess what will happen in this sector.
Thursday, Palo Alto Networks (PANW) jumped 17% a day after the computer security company posted better-than-expected quarterly results.
Cloud based storage company Box (with the easy to remember ticker symbol – BOX) popped 9.5% Thursday, briefly hitting a 52-week high intraday, after its earnings report.
A retailer outlier Friday as Lululemon (LULU) shot up nearly 12% after the apparel-maker posted first-quarter results that beat expectations and announced a shake-up of its Ivivva brand. That said, this rally is off of a few disastrous months.
Also Friday, RH (RH) sank nearly 26% after the
artist retail chain formerly known as Restoration Hardware cut its earnings outlook for the year.
Have a great week and we’ll see you back here Sunday!