All-time highs for tech amid jobs-report shocker

06/08/20
  • Jobs rebound: Record one-month employment increase
  • NDX erases coronavirus sell-off, small-caps continue surge
  • This week: Fed and OPEC meetings, inflation data

There are surprises, and then there are surprises.

An unemployment rate of 13.3% is never a good thing, but when the market is bracing for something closer to 20%, you get what happened on Friday—an 2.6% surge in the S&P 500 (SPX) that capped off its best week in two months and locked in the US market’s third up week in a row:

Chart 1: S&P 500 (SPX), 3/20/20–6/5/20. S&P 500 (SPX) price chart. Jobs-surprise surge

Source: Power E*TRADE


The headline: Jobs report shocks to the upside, Nasdaq 100 ends week at new all-time high.

The fine print: The jobs surprise overshadowed what otherwise would have been last week’s lead market story—the Nasdaq 100’s (NDX) consecutive record highs on Thursday and Friday. Ironically, though, the tech index notched these milestones despite having recently surrendered its leadership position in the US market (see “Indexing the indexes,” below).

The numbers: 13.3%, the US unemployment rate in May—shockingly better than the 19.5% estimate, and down from 14.7% in April.1 And while economists had anticipated job losses of nearly eight million, the US economy actually added roughly 2.5 million—the biggest monthly gain in history.

The quote: “The whole thing is nuts.″ Expedia and IAC chairman Barry Diller, describing earnings guidance as “bad business,” and explaining why his companies would no longer provide it.2

The scorecard: In addition to its new records, the NDX pushed its year-to-date (YTD) percentage gain into double digits, while the SPX SPX trimmed its YTD loss to around -1%. But the Russell 2000 (RUT) was the week’s real winner:

US stock index performance table for week ending 6/5/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were energy (+15.4%), financials (+12.2%), and industrials (+10.5%). The weakest sectors were health care (+0.2%), consumer staples (+1.9%), and utilities (+2.4%).

Highlight reel: On Friday, Chesapeake Energy (CHK) soared 77% to $24.80 and Nabors Industries (NBR) jumped 51% to $65.62. On the downside, on Wednesday Smartsheet (SMAR) dropped 23% to $45.50 and Lovesac (LOVE) fell 17% to $17.28.

Futures action: July WTI crude oil (CLN0) kept its rally alive, jumping 4.2% on Friday to end the week at $38.97/barrel. After rallying to $1,761/ounce on Monday, August gold (GCQ0) slid the rest of the week to close at a two-month low of $1,688.60.

Last week's biggest futures up moves: July rice (RRN0) +19.5%, July RBOB gasoline (RBN0) +11.8%,  August Brent crude oil (BQ0) +11.1%. Last week's biggest futures down moves: June hogs (HEM0) -16.5%, July VIX (VXN0) -10%, June live cattle (LEM0) -5.8%.

Coming this week

The FOMC announcement and an OPEC confab highlight this week’s economic calendar:

●Tuesday: OPEC meeting, NFIB Small Business Optimism Index, Wholesale Inventories, JOLTS Job Openings

●Wednesday: OPEC meeting, Consumer Price Index (CPI), Fed meeting announcement

●Thursday: Jobless claims, Producer Price Index (PPI)

●Friday: Import and Export Prices, Michigan Consumer Sentiment Index

Earnings this week include:

●Monday: 58.com (WUBA), Casey’s General Stores (CASY), Coupa Software (COUP), Calavo Growers (CVGW), Stitch Fix (SFIX)

●Tuesday: Five Below (FIVE), Lovesac (LOVE), Chewy (CHWY), Verint Systems (VRNT)

●Wednesday: Oxford Industries (OXM)

●Thursday: Adobe (ADBE), Lululemon Athletica (LULU), PVH (PVH)

●Friday: No earnings of note, but an IPO for online used car seller Vroom (VRM). Target range: $15–$17.

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

Changing of the stock-index guard

While few people would have predicted in late March that less than 10 weeks later the broad market would be nearly positive for the year and tech would be trading at all-time highs, what may be equally surprising is the rotation that occurred below the surface of this historic rally.

The following chart shows the percentage returns of the Russell 2000 (RUT), Dow Jones Industrials (DJIA), S&P 500 (SPX), and Nasdaq 100 (NDX) from May 5 through Friday:

Chart 3: Russell 2000 (RUT), Dow Jones Industrials (DJIA), S&P 500 (SPX), Nasdaq 100 (NDX), 5/5/20–6/5/20. RUT led, NDX lagged

Source: Power E*TRADE


Yes, the NDX was the index that made the new record last week, but over the past month it’s been the weakest major US index, gaining half as much (9%) as the small-cap Russell 2000 (19%).

Given the rut the RUT was in at the bottom of the coronavirus sell-off—down 42% on the year—it’s perhaps no surprise that it has bounced back with extra gusto. (Despite leading the pack since the March lows, it still lags its fellow indexes by a wide margin this year.) Similarly, some rotation out of tech names that had posted truly stratospheric rallies doesn’t necessarily mean the bullish party is over. Traders have to take profits at some point.

But as noted here a few weeks ago when the NDX first began to lose some of its momentum, traders will be watching to see if the past month’s trend is an aberration or a new normal, because the broader market’s upside could be more subdued without tech leading the bullish charge.

 

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1 The Wall Street Journal. U.S. Unemployment Rate Fell to 13.3% in May. 6/5/20.

2 CNBC.com. Barry Diller calls for an end to ‘absurd’ earnings guidance, says his firms won’t do it anymore. 6/5/20.

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