Jobs report head fake

05/10/21
  • Fresh highs for S&P 500 and Dow as market embraces jobs miss
  • Energy and materials sectors ride commodity rallies
  • This week: Inflation data, retail sales

It’s May, and the bulls haven’t gone away—yet.

A choppy first week of the month ended with a two-day surge that propelled the S&P 500 (SPX) to new record highs, despite a big miss on Friday from the monthly jobs report:

Chart 1: S&P 500 (SPX), 3/23/21–5/7/21. S&P 500 (SPX) price chart. Friday record high.

Source: Power E*TRADE


The headline: Stocks punch to new highs despite economic surprise.

The fine print: One day won’t tell the whole story, but Friday’s “bad news” rally makes more sense in the context of the market’s ongoing inflation jitters. Last Tuesday, for example, stocks sold off amid Treasury Secretary Janet Yellen’s comments (which she later tempered) that the Fed may have to raise interest rates sooner rather than later to prevent the economy from overheating.Friday’s weak employment data may have temporarily eased worries about too-hot inflation—and the necessity of interest rate hikes to combat it.

The number: 266,000, the number of jobs the US economy added in April—little more than a quarter of what economists had forecasted. The unemployment rate also increased to 6.1%, and March’s jobs increase was revised lower, from 916,000 to 770,000.

The scorecard: The Nasdaq 100 (NDX) lost ground for a third-straight week, while the Dow now has the second-highest year-to-date return:

US stock index performance table for week ending 5/7/20. 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 (+8.8%), materials (+5.8%), and financials (+4.2%). The weakest sectors were consumer discretionary (-1.2%), real estate (-1%), and utilities (-0.9%).

Highlight reel: MicroVision (MVIS) +47% to $26.44 on Monday, ChemoCentryx (CCXI) -45% to $26.63 on Tuesday—and -62% to $10.46 on Friday.

Futures action: June gold (GCM1) pushed above $1,800/ounce for the first time since February last week, tagging $1,844.60 on Friday before closing at $1,831.30. After challenging its two-year highs and closing at a contract high of $66.15/barrel last Tuesday, June WTI crude oil (CLM1) dipped to close Friday at $64.90. July Lumber (LBSN1) was the week’s biggest gainer for the second week in a row (+21.4%), while May VIX (VXK1) was the week’s biggest loser (-10.2%).

Coming this week

Inflation numbers and retail sales highlight the week’s economic calendar:

Tuesday: NFIB Business Optimism Index, JOLTs (job openings)
Wednesday: Consumer Price Index (CPI)
Thursday: Producer Price Index (PPI)
Friday: Retail Sales, Import and Export Prices, Industrial Production, Capacity Utilization, Michigan Consumer Sentiment (preliminary), Business Inventories

Earnings this week include:

Monday: BioNTech (BNTX), Occidental Petroleum (OXY), Scientific Games (SGMS), Trade Desk (TTD), Tyson Foods (TSN), GW Pharmaceuticals (GWPH), Workhorse (WKHS), Marriott (MAR), Novavax (NVAX)
Tuesday: Electronic Arts (EA), BigCommerce (BIGC), Hyliion (HYLN), FuboTV (FUBO), Schrodinger (SDGR)
Wednesday: Applied Materials (AMAT), Wendy's (WEN), Dillard's (DDS), Vroom (VRM), Lemonade (LMND)
Thursday: Alibaba (BABA), Airbnb (ABNB), Walt Disney (DIS), DoorDash (DASH), Yeti Holdings (YETI).

This week’s IPOs include:

Monday: Levere Holdings (LVRA)
Tuesday: Flora Growth (FLGC), TransCode Therapeutics (RNAZ)
Wednesday: SimilarWeb (SMWB), Global-E Online (GLBE)
Thursday: Genworth Mortgage (ACT)
Friday: Zenvia (ZENV)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Infrastructure, commodities, and the stock market

With steel, copper, and lumber at all-time highs (copper just joined the club on Friday), grains at eight-year highs, and random markets from hogs to coffee percolating to the upside, commodities have been getting an increasing share of attention from traders, analysts, and the press.

Aside from the inflation and reopening angles to this story, Morgan Stanley analysts have highlighted the potential for certain markets—and specific areas of the stock market—to benefit from future infrastructure spending (see “Paving the Way for a U.S. Infrastructure Supercycle”).

 

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1 Washington Post. Yellen’s comments on inflation spark confusion, clarification as White House tries to navigate economic pressures. 5/4/21.

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