This was the third week in a row where we saw major indexes post 4 gains out of 5 for the week! While none of the gains individually were massive, when you have 3 weeks in a row of almost identical behavior you start to walk into a market where some of the indexes need a rest to consolidate some gains! The S&P 500 gained 1.2% for the week while the NASDAQ jumped 1.5%.
While the jobs report Friday (more on that below) got most of the attention this week economically, Monday’s ISM Manufacturing report was booming with a reading of 60.8, representing the highest level for the report since 2004. Expectations were for 58.1. Meanwhile Wednesday’s ISM non manufacturing rose to 59.8, compared with 55.3 in the prior period and marked its highest level since 2005. A reading of 50 or greater indicates expansion.
The economy “lost” 33,000 jobs in September, marking the first decline since 2010. Yet the decline was entirely due to widespread workplace disruptions caused by hurricanes Irma and Harvey. The storms disrupted major economic centers in Texas and Florida, where as many as 1.5 million people were temporarily unable to get to work; that’s the most in 20 years. The industry hurt the most was the restaurant business. Employment fell by a whopping 105,000. The unemployment rate, meanwhile, fell to 4.2% from 4.4% and hit the lowest level since December 2000. The jobless rate was not affected by the storms, the government said.
Wages rose 0.5%, or 12 cents, to $26.55 an hour, likely reflecting a hurricane-induced bump – many low paying jobs in hurricane hit areas are hourly and thus when those people don’t work, average wages for the country rise.
“The Fed and the markets will just ignore this report,” said Paul Ashworth of Capital Economics. “If past-storms, particularly Katrina, are any guide, employment will rebound markedly over the next few months.”
The Senate approved a budget bill on Thursday. Republicans passed tax cuts through what is known as budget reconciliation, which requires just a simple majority in the Senate.
“Up until a week ago there has been a lot of pessimism among investors that the Trump administration cannot pass any tax reforms, especially after the failure to repeal the [Affordable Healthcare Act]. But that seems to have changed last week, when the [Big Six] outlined their tax plan and more people now believe companies’ earnings will be boosted by lower tax rates,” said Phil Orlando, chief equity market strategist at Federated investors. The so-called Big Six includes the leaders of the House and Senate, national economic director Gary Cohn and Treasury Secretary Steven Mnuchin.
Major auto makers posted better-than-expected sales gains in September amid heavier consumer discounts and demand to replace hurricane-damaged vehicles, giving the industry relief from a protracted period of declining results. Incentives averaged $4,048 per vehicle last month, a record for any month. Pickup trucks, vans and SUVs accounted for 65% of overall sales in September, up from 61% a year earlier. An estimated 600,000 vehicles will need to be replaced in Texas and Florida, said Jonathan Smoke, an economist at the research firm Cox Automotive. General Motors (GM) reported U.S. sales growth of 12%, and had a big week.
Here is the 5 day weekly “intraday” chart of the S&P 500 .. via Jill Mislinski.
The week ahead…
Minutes from last month’s Federal Open Market Committee meeting are slated for release on Wednesday, which might offer fresh clues about officials’ take on the outlook for inflation and interest rates. Retail sales will be reported this week (expected surge of a massive +1.5%) and should receive a big hurricane related boost due to those auto sales discussed above.
President Trump is expected to announce a decision on the next Federal Reserve head in the coming weeks so that could come at any time.
Earnings season will also begin.
Short term: Things are certainly overextended here again on the S&P 500 short term as the 20 day moving average is some 40 points lower at this point. The NASDAQ is not too far behind.
The Russell 2000 had a monster week the week prior to this past one, so was in rest mode Tue-Fri.
The NYSE McClellan Oscillator remains in all systems go territory but ended Friday near 0 so something to watch next week.
Long term: The 5 year charts remain in unicorns and butterflies mode for bulls.
Charts of interest / Big Movers:
Mylan (MYL) surged 16% Wednesday after the maker of generic drugs late Tuesday announced that the Food and Drug Administration had approved its generic versions of Teva Pharma’s (TEVA) Copaxone, a drug for people with relapsing forms of multiple sclerosis.
If was a week – and even in this stampeding bull market – that means someone in brick & mortal retail had to take a hit. This week it was Office Depot (ODP) plunged 18% after the retailer late Tuesday said it’s lowering its 2017 profit guidance and plans to pay $1 billion for IT company CompuCom Systems.
Netflix (NFLX) jumped 5.4% Thursday after the video-streaming giant raised the price of two of its memberships. The stock is up >80% over the past 12 months.
Herbalife (HLF) jumped 11% on Friday to their highest since 2014 after the company said it was buying back about 7% of its stock, a potential blow to activist investor Bill Ackman, who has bet against the dietary supplements seller. Herbalife had agreed to purchase up to $600 million in stock at a price between $60 and $68 per share. Pershing Square Capital Management’s Ackman disclosed a $1-billion short position against Herbalife in 2012, saying the stock would crumble under regulatory scrutiny for what he has called a pyramid scheme.
Synchronoss Technologies (SCNR) soared 32% Friday in the wake of the cloud backup and mobile activation company’s decision to start talking again with major shareholder Siris Capital about a possible acquisition.
Have a great week and we’ll see you back here Sunday!