Courtesy of John Nyaradi.
With last week’s poor employment report and recurring problems in Spain, global markets can only hope that the Easter Bunny hasn’t left the building.
It was a poor ending to a lackluster week as the Non Farm payrolls report was a huge disappointment and stock indexes futures were down sharply on Good Friday morning as U.S. financial markets were closed.
Economic reports were mixed for the week as the widely watched ISM was close to expectations at 53.4 and above the 50 level that divides contraction from expansion. Consumer spending declined sharply by -1.1%, missing forecasts and down from last month’s -0.1% which is bad news for our consumer driven economy.
Factory orders missed expectations but at 1.3% were sharply improved over last month’s -1.1% and ISM services came in weaker than expected and weaker than last month. Private jobs as reflected in the ADP report were down to 209,000 from last month’s 230,000 while overall unemployment continued to decline and beat expectations.
But on Friday, the Non Farm Payrolls report shocked everyone, coming in at 120,000 versus expectations of 210,000 new jobs and 240,000 last month. This was a huge miss and futures markets reacted negatively which sets up for a lower open Monday morning after the long Easter weekend. The report was yet another indication of slowing economic conditions in the United States and brings back the possibility of more easing on the part of the Federal Reserve to keep the economy from sputtering to a halt.
Overseas, Spain bubbled back to the front burner as bond yields rose and European financial stocks and indexes fell sharply.
Next week brings the start of earnings season with Alcoa and Talbot’s on Tuesday, Google on Thursday, and major financial players, Wells Fargo and JP Morgan in Friday. The month will be be heavy with earnings and one of the most widely watched reports is sure to be Apple Computer on April 24th.
Seasonality now works against the major US indexes with the “sell in May and go away” phenomenon now in play.
ETFs we’re watching include the SPDR S&P 500 (NYSEARCA:SPY) which is now on a MACD “sell” signal after having failed at multiple attempts to breach significant long term resistance levels at 1420. Russell 2000 (NYSEARCA:IWM) is in a similar configuration and dropped below its 50 day moving average last week. The Nasdaq 100 (NYSEARCA:QQQ) is also retreating from recent highs and its future is tightly locked to major component, Apple Computer, as its earnings report approaches. iPath VIX Short Term Futures ETN (NYSEARCA:VXX) the ETN that tracks the CBOE S&P 500 Volatility Index, also known as the “fear” indicator, has bounced off long term lows and now has registered a short term MACD “buy” signal which could indicate higher volatility and lower equity prices ahead.
Aside from the poor employment report, last week’s notable events were in Spain where a bond auction was weak and interest rates continue to rise towards dangerous levels as unemployment is in the 20% range and the economy slows due to austerity measures. Europe is entering recession and China appears to be heading for a slowdown, as well.
However, the most notable event was the FOMC minutes’ report which indicated that the Fed was less inclined to add to their program of quantitative easing which markets didn’t like at all as they’ve seemingly become addicted to “easy money.” Friday’s employment report could change the Fed’s tune next week and market participants will be listening to Dr. Bernanke’s every word in speeches this week for hints of his plans and whether or not Operation Twist will continue when the current program is set to expire in June.
Bottom line: On Tuesday the Easter Bunny left the building with the FOMC minutes report, just in time for further indications that the U.S. and global “recovery” could be in serious jeopardy. The current U.S. recovery is the weakest ever, even slower than after the Great Depression, in spite of trillions of dollars having been injected into world financial systems by central banks across the globe. Europe is in serious trouble with Spain, the world’s 12th largest economy, sporting 10 year bond yields of 5.8% and continuing to climb towards the “unsustainable” 7% level, while its economy slows and unemployment tops 20%. Earnings season will be interesting, to say the least, and weakening fundamentals and technical indicators, along with weak seasonality, point to “sell in May and go away” perhaps arriving earlier than usual this year.
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