A disappointing May jobs growth number of just 75,000 paints a picture of a slowing economy, and raises expectations that the Fed might cut rates.
Jobs growth for May comes in sharply lower than expected at 75,000
Government downwardly revised March and April jobs growth
Stocks edge lower as investors digest less bullish payrolls data
FIGURE 1: RUT LAGS: Small-cap stocks, represented here as the candlestick by the Russell 2000 (RUT) index, haven’t been able to bounce back as well as the large-cap S&P 500 Index (purple line) this week. Investors’ embrace of large caps might be a sign of more economic optimism. Data Source: FTSE Russell, S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Trading With Blinders: One more corporate note worth mentioning from Thursday is the performance of some of the biggest Energy companies—Exxon Mobil (XOM) and Chevron (CVX). Shares of both rose early Thursday despite a drop in crude prices, which didn’t seem to make much sense. Then around midday, crude rallied 3%, helped in part by the Mexico news. All along, XOM and CVX didn’t waver. For those paying attention, those two names were telling people something about the market.
What lesson can investors take away? Sometimes people trading a stock just look at the stock, but trading is all about relationships, and you really should consider watching those. If you generally look at commodities, for instance, you also might want to pay attention to stocks correlated with them. Or some people might say, “I only trade Apple (AAPL),” but what about the AAPL supplier stocks that often can tell investors something about how AAPL might be doing? People too often have blinders, but someone going blindly into crude on Thursday without looking at CVX and XOM might have gotten burned.
Cooking With Caution: An interesting note this week on the sector side is that even though cyclicals are getting a bid, so are some of the more defensive areas like Consumer Staples and Real Estate. This could hint that investors aren’t universally ready to drop the “risk-off” attitude they generally held going into the week. That said, the way the Treasury market has rallied lately, it’s likely a lot of money now sits on the sidelines, and could be put back into stocks if people start feeling optimistic. However, yields continued to get leaned on Thursday. That could be the real key to getting a sense if this rally has some wind behind it. If yields start climbing and Staples and other “defensive” areas lose ground, that could tell investors things are turning around. The rally in crude on Thursday could be another sign.
Tough Times in Texas? Energy shares got a boost Thursday as crude prices bounced back, but the sector as a whole entered Thursday down 1.5% over the last three months. The results get a little more lumpy when you look closely. The big players in oil, gas, and consumable fuels are down a combined 1.4% over that time frame. It’s the upstream energy, equipment, and services sub-sector that’s really suffering, down more than 10% over the last three months and down 42% over the last year. Worries include falling economic demand, rising U.S. stockpiles, and concerns about how potential tariffs on Mexico might affect the drilling industry. That’s why it could be interesting next month to listen to some earnings conference calls from that sub-sector, including Schlumberger NV (SLB) and Halliburton (HAL).
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