Light trading, solid gains

  • 224,000 jobs added in June—beating consensus expectations
  • Markets cheered recharged US-China trade talks
  • This week: Consumer credit, business inventories, producer and consumer inflation

Americans fired up the grills and looked to the skies on Independence Day, with the major equity indexes creating some fireworks of their own through mid-week. Despite lighter-than-usual trading volume, the Dow Jones Industrial Average and the S&P 500 climbed to record highs through Wednesday. But that was before a strong jobs report on Friday raised doubts about the potential scale of monetary easing in July.

S&P 500 (SPX), 5/14/19–7/05/19. S&P 500 (SPX) price chart. Focus on the Fed

Source: Power E*TRADE

Financials led the markets higher to start the week after all 18 banks undergoing a second round of Fed stress tests passed. Semiconductor shares were also big winners after some restrictions on selling to Huawei Technologies were eased and the US and China rebooted trade talks.

But the gains weren’t all-encompassing. Energy stocks took a beating after OPEC agreed to extend current production levels for an additional nine months. Although the market’s reaction sounds counterintuitive, investors were hoping for additional cutbacks, causing US crude oil prices to retreat 3% on the news on Tuesday.

Friday’s jobs report delivered good and bad news. On the upside were 224,000 jobs added in June—handily beating the 170,000 consensus forecast. But the unemployment rate ticked up slightly to 3.7% and investors greeted the rebounding labor market with a snarl. With the prospect of a 0.50% rate cut in July looking dim in the face of improving jobs numbers, stocks retreated.

Oh, and remember that “psychologically significant” 3% yield for the 10-year Treasury note last year? That yardstick is now 2% and falling after 10-year Treasury yields briefly dipped below 2% again last week. Not surprisingly, utilities and REITs, which took it on the chin in June, are getting a boost from yield-hungry investors.

US stock index performance table for week ending 7/05/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE

Sector breakdown: The strongest S&P 500 sectors last week were communication services (2.74%), real estate (2.44%), and information technology (2.23%). The weakest sectors were energy (-0.94%), industrials (0.11%), and materials (0.52%).

Power moves: On Tuesday, drug maker Amarin (AMRN) climbed 16.27% to $22.37 on increased revenue guidance and optimism around its fat-reducing Vascepa drug. Symantec (SYMC) rallied 13.57% on Wednesday to $25.10 after the cybersecurity software firm was rumored to be an acquisition target of chipmaker Broadcom (AVGO), which tumbled 10.44% to $284.89 on the news. Pier 1 Imports (PIR) took a bath after missing consensus earnings estimates, falling 10.23% to $6.23 on Wednesday.

Futures action: August WTI crude oil (CLQ9) fell 3% on Tuesday after OPEC agreed to maintain current production levels. After climbing above $60/bbl on Monday, WTI closed out the week at just over $57/bbl. On the heels of last week’s brief rise to $1,440/ounce, August gold (GCQ9) turned lower on strong June jobs data and finished the week at near 1,400/ounce.

Coming this week

With jobs numbers reported, investors will no doubt be curious how the inflation picture is shaping up. Both wholesale and consumer inflation data will be reported later this week.

Monday: Consumer credit

Wednesday: Wholesale inventories, EIA crude oil inventories, MBA mortgage applications

Thursday: Core CPI, budget deficit

Friday: Core PPI, PPI

Q2 earnings season is about to get under way. This week’s earnings include:                  

Tuesday: PepsiCo (PEP)

Wednesday: Kraft Heinz (KHC)

Thursday: Delta Airlines (DAL), Fastenal (FAST)

Friday: Infosys (INFY)

Go to the E*TRADE market calendar (logon 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.

Word on the Street

I think we’ll get 25 basis points. Anything more is hallucinatory.

Brian Benthune, chief economist at Alpha Economic Foresights, discussing the potential magnitude of Fed easing in July.

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