Courtesy of Blain.
Indexes appeared confused on how to react to a lukewarm employment report. Sometimes bad data = good news for the market because it means more central bank support but it usually has to be really bad. The market opened near flat and did nearly nothing until about 2 PM when some buyers showed up. The S&P 500 gained 0.32% and the NASDAQ 0.42%. Remember back in December when everyone was saying the Fed would raise rates 4 times? We said “not so much.” Looks like we will be correct.
Employment rose 160,000 last month vs expectations of 203,000. The prior 2 months were also revised down by 19,000. Good producing jobs in the U.S. failed to show growth in the past 3 months – this is the first time that has happened since late 2009/early 2010. The unemployment rate remained flat at 5%, but more people dropped out of the labor force and the so-called participation rate fell for the first time in seven months. Average hourly wages for the month rose 0.3%, also in-line with expectations. If you are interested in more about the employment data, there is a nice story here about how job growth is coming mostly in low wage industries – the case for much of this recovery. Here is a nice chart showing the labor force participation rate dropping dramatically in the past 7-8 years – which is by definition making the unemployment rate look better than it truly is.
“On the one hand, this jobs reports shows the Fed will not be able to raise rates until the end of the year, because of what’s going on overseas and upcoming presidential elections in the U.S. The Fed might just raise rates one more time in December to save face, like it did last year,” said Chris Gaffney, president at EverBank World Markets.
Edward Jones’s market strategist Kate Warne said the jobs report carried an ambiguous message. “It was decent enough to show the economy still adding jobs, but weak enough to swing expectation of a rate hike further out.” she said.
Here are some multi year charts of the indexes – this is good to show the importance of the blue dotted line which connects multi year lows. Last time the NASDAQ broke that level we saw a lot of selling in the weeks to follow. Right now the index is in a similar place. …but the NASDAQ is very oversold so it would be difficult to see the index slice right through it on the first test.
“Basically the market was oversold, due for a bounce,” said Lance Roberts, chief investment strategist at Clarity Financial.
The NYSE McClellan Oscillator remains firmly in the red but now away from quite oversold levels.
Herbalife (HLF) jumped after the nutritional-products company’s quarterly results beat analysts’ expectations. The company also said that it’s nearing a settlement with the Federal Trade Commission. If a settlement is reached, Herbalife said in a statement quoted by Bloomberg that its best estimate of a payment is $200 million.
FireEye (FEYE) shares tumbled after the security software company posted a wider loss, cut its sales view for the year and named a new chief executive officer.
Wedbush Securities downgraded Square (SQ) to underperform from neutral after the company missed on profits in the first quarter. A one-time charge of about $50 million weighed on results with the company posting a loss of $0.14 per share, larger than the Street’s estimate of a loss of $0.09.
The New York Post is reporting that JC Penney (JCP) is taking emergency measures to stay afloat, including slashing its payroll and freezing overtime.
Amazon (AMZN) and Facebook (FB) will be interesting stocks to watch in the near term as they both had “break away gaps” on earnings and held those gaps despite the sluggish NASDAQ. If either – or both – break through these floors in the coming week or two it might bode ill for the NASDAQ as a whole as you don’t want leaders falling over.
Have a good weekend and we’ll see you Monday!
