This week saw the official return of “bad news is good news” as the more bad news means more Federal Reserve intervention. Economic data was poor and the markets cheered it on, as Jerome Powell rode to the rescue Tuesday on his white stallion and after his now famous “patience” line in late 2018 led to a massive 20%+ rally we have “act as appropriate to sustain the expansion”. Translated – the interest rate cuts are coming. Tuesday’s performance was the market’s best since January 4th.
“The potential that the Fed could step in and maybe cut rates is a definite comfort to markets and investors,” Kayrn Cavanaugh, senior market strategist at Voya Investment Management told MarketWatch. “The market had also gotten oversold in the past couple of days,” she added. “So a lack of bad news on trade, along with the Fed saying its ready to step in to save the economy if needed, was enough for the market to rally.”
ISM Manufacturing came in at 52.1 vs 52.8 the prior week. It is starting to creep into the danger zone near 50 which signals the cutoff point between expansion and contraction.
ISM Services was better, as it 56.9 vs April’s 55.5.
Friday we had a miserable jobs report – the market loved it!
The U.S. economy added 75,000 new jobs in May, while the unemployment rate held steady at 3.6%, the Labor Department said Friday, far below the 185,000 estimated by economists. Estimated job gains for both March and April were cut by a total 75,000, and the three-month moving average of monthly job gains has fallen from 245,000 in January to 151,000 today.
“This is the type of [jobs report] the doves will really take to, as it supports the argument for cutting rates beyond politics or trade issues, which were never part of the Fed’s mandate to begin with,” Mike Loewengart, vice president of investment strategy at E-Trade wrote in an email.
10 year yields continued to slide downwards.
To end the week, we received news that those Mexico tariffs will not be hitting after all.
For the week, the S&P 500 gained 4.4% and the NASDAQ 3.9%.
Here is the 5 day weekly intraday chart of the S&P 500 … via Jill Mislinski.
The week ahead…
While there is a Federal Reserve meeting in June, all eyes are on the first rate cut happening in July now. The only question is can Powell guide the market up another 20%+ as he did beginning in December. Outside of that retail sales hit Friday.
Short term: These double tops are still intact for now – the minute indexes get back over those levels, they will have been eradicated.
The Russell 2000 broke back into the range it has been stuck in since February.
The NYSE McClellan Oscillator flipped back to black which is where bulls like to see it.
Long term: both the S&P and NASDAQ created a weekly outside reversal which means it went lower than the prior week and then finished higher. That’s usually a very bullish thing.
Charts of interest / Big Movers:
Google (GOOG) sank 6.1% Monday following a report from the Wall Street Journal’s indicating the Department of Justice will be investigating the company for potential violations of antitrust regulations.
Cypress Semi (CY) rallied 24% Monday after Infineon Technologies announced that it would acquire the firm in a $10.1 billion deal.
GameStop (GME) tumbled 35.6% Wednesday, after the videogame retailer released disappointing first-quarter earnings results and eliminated its dividend, Tuesday evening. Meanwhile, Kirkland’s (KIRK) fell 50.4% Thursday, after the home décor retailer reported a larger fiscal first-quarter than expected, on sales that fell more than forecast. Another 2 retail chart that looks like Sears, JCPenney… etc.
Ciena (CIEN) jumped 26.8% Thursday, after the network-and-communications infrastructure company reported fiscal second-quarter earnings and revenue that rose well above expectations.
We have posted about Beyond Meat (BYND) each week it’s been a public company – we will do it again this week after a massive rally on Friday off of earnings. Wow.
Also Friday, Zoom Video Communications (ZM) closed up 18.4%, after the firm announced better-than-expected earnings Thursday evening.
Have a great week and we’ll see you back here Sunday!