S&P 500 posted its third week of gains

BY  | FROM  | 2016-06-06 16:33

If Yellen & Company had felt that the market gave them no respect for interest rate increases, the employment report appeared to say “read my lips” in response to the Fed’s “data dependent” priority. 
The shortened week started out nice; nothing like a three-day weekend, nice weather, and hopes of a new high to Prime things up, even as Tuesday started off with a minor decline (off 0.10%).  Wednesday and Thursday went as hoped, with the market breaking above 2,100 and pulling within 1.2% of the closing high.  Then came Friday’s pre-market (8:30 a.m.) employment report; to say it missed the strike zone of 158,000 net new jobs would be like saying the Titanic took on a bit of water.  May created 38,000 jobs, and the April and March downward restatements took away 59,000.  And while the unemployment rate declined to 4.7% (from 5.0%), the reason appeared to be that many people gave up looking, and therefore they weren’t counted as unemployed. The market reaction was quick and negative for equities, interest rates, and the U.S. dollar, and positive for gold, but the feeling didn’t last long. Yes, prices remained in the red, but the market seemed to shrug off the report as a one-off, as it moved back to September for the first rate increase, with June being only for those wanting to play short-term long shots, and July for committed Hawks.  The result was that Friday mornings 0.95% decline turned into a 0.29% loss by the close, as interest rates and the U.S. dollar declined and gold swung up.  The acceptable, but disappointment for the many looking for a new high, left the market up 0.0032% for the week-score one in the winning column (and hope no one wants a recount). Wow, an opening weekly impact statement without mentioning oil, that’s been a while.  Oil again reached USD 50 briefly (but couldn’t hold it), as OPEC oil ministers met and decided little, with short-term supply still hampered by local events; oil closed down at USD 48.90 from last week’s USD 49.50.
Economic news was busy.  Japanese Prime Minister Abe said he would postpone the planned sales tax increase (from 8% to 10%) until 2019 and would implement new stimulus packages to aid the Japanese economy.  Australia’s Q1 2016 GDP came in higher than expected, at 3.1%, which was in line with the central bank’s 2.5% to 3.5% target.  China’s May Manufacturing PMI came in at 50.1, unchanged from April, and the eurozone PMI was 51.5.  The ECB met in Vienna, and President Draghi said the bank stood ready to take action, but it left rates and policies unchanged.  Also in Vienna was the OPEC members meeting, which reached no agreement on production or prices.
In the U.S., the S&P/Case-Shiller Home Price Index for March came in stronger than expected, up 0.9%, when a 0.7% gain was expected—another positive housing report.  The April Personal Income Report posted a 0.4% gain, as expected, and consumer spending increased 1.0% (when a 0.7% rate was expected).  The PCE increased 1.1% year-over-year, as the Core PCE was up 1.6% year-over-year. 
The ISM Manufacturing Report for May came in at 51.3, when a lower 50.6 was expected.  The April Construction Report posted a 1.8% decline when a 0.6% gain was expected, as March was restated upward to a 1.5% gain from the originally reported 0.3% gain.  The Trade Report for April posted a USD 37.4 billion deficit, when a USD 41.0 billion deficit was expected, as March was restated down to a USD 35.5 billion deficit, from the originally reported USD 40.4 billion deficit.  Exports were up 1.5% for the month (USD 182.8 billion), and imports increased 2.1% (USD 220.2 billion).  The May employment report was the major report of the week (and before the FOMC’s June 14-15, 2016, meeting), and it was bad.  The report came in with only 38,000 net new jobs created in May, when 158,000 were expected (the lowest gain since September 2010), as the prior two months were revised down, 22,000 and 38,000 jobs respectively (taking away 59,000 jobs, while May added only 38,000).  The unemployment report declined to 4.7% (from April’s 5.0%) as workers left the job market, with the participation rate declining to 62.6% from last month’s 62.8%.  Average hourly wages did increase 0.2% (as expected), with the year-over-year-wage increase at 2.5%, and the average hours worked were unchanged at 34.5.  The result was a lower chance of a June or July Fed interest rate increase; the market declined on the news, as did interest rates and the U.S. dollar.
Breadth declined but managed to stay positive as Friday’s employment report took it down.  For the week, 286 issues gained, significantly down from last week’s one-sided 458 gains (the prior week was 274).  Decliners picked up, with 219 declining, compared to last week’s 46 issues (and 230 in the week before that).  Four issues gained at least 10% (11 did so last week), and 14 more were up at least 5% (35 were last week).  One issue declined at least 10% (none did so last week), as five additional issues lost at least 5% (three did so in the prior week).  Year-to-date, breadth ticked up, as 333 issues were ahead, up from last week’s 329 issues; 183 issues gained at least 10% (171 did so last week), compared with 169 down issues, a decrease from last week’s 175, with 82 of them down at least 10% (76 were last week). 
For the week, the market closed at 2,099.13, up 0.0033% from last week’s 2,099.06, which was up 2.28%.  Friday’s 0.29% decline pushed the market down, but kept it in the black by a tick, as the week posted its third week of gains (2.56%), which was after three weeks of declines (-2.15%).  Year-to-date, the market was up 2.70% from its 2,043.94 close, as it remained off 1.49% from its May 21, 2015, closing high (2,130.82), which many were, and still are, looking for—dreams always live on (and for the market, eventually come true; it’s just a matter of timing).
For the week, six sectors moved up, a decline from last week’s perfect week, where all 10 groups moved up. In a turnaround, utilities, which did the worst last week (up 1.14%) and the worst the week before that (off 2.25%), gained 2.49% for the week, with Friday’s 1.66% gain helping the most.  Year-to-date, utilities continued to be the best group, up 14.96%, and up 30.90% from the end of 2013, the best of any sector (so much for the boring, low-growth, income-producing sector).  Financials did the worst, off 1.29%, as higher interest rates, which were expected to help their margins, seemed farther out (September was the current “thinking”); the sector was off 1.69% year-to-date, the only sector in the red.  Health care gained1.51% for the week, moving it into the black for the year-to-date, up 0.04%. Energy closed down 1.02% and was up 10.23% year-to-date, as oil continued to dance with USD 50, but it was unable to step in to the roll (closing at USD 48.90). 
Trading volume increased (adjusted for the shortened week) by 15% for the week and was 1% below the one-year average.  Measurable volatility (the high-over-low price variance) decreased to a very low 0.97% (lowest since May 2015) from last week’s 2.53% (the one-year average is 3.07%).  No day posted a change of at least 1%, compared to one last week, up 1.37%. The VIX moved up, closing at 13.47, up from last week’s 13.09 but down from the prior week’s 15.20 (18.21 at year-end 2015; the 25-year average is 19.66).
Next week’s highlight will be in California and New Jersey, as those states hold their political primary elections, which could chart the next month’s actions in the Democratic party, as Clinton attempts to close the nomination issue against Sanders, and concentrate on the general election (on November 8, 2016) against republican Trump.

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