Last week’s strength appears to be rolling into the new week with the suspension of proposed U.S. tariffs on Mexico, stronger than expected Chinese exports, and a big merger announcement.
FIGURE 1: DISCONNECT THE DOTS: While the 10-year U.S. Treasury yield (candlestick) kept getting hit last week, Utilities (purple line), couldn’t continue their upward momentum Friday. This was a conundrum, because dividend-yielding sectors like Utilities generally do well when Treasury yields fall. We’ll see if it was a one-day affair or if there’s more to this as the week continues. Data Source: S&P Dow Jones Indices, Cboe Global Markets. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Weak Jobs and the Consumer: The jobs number for May was soft, and the government also cut its estimates for March and April payrolls growth by a combined 75,000. This could put more importance on some of the coming economic data that reflect consumer health, like retail sales and housing. Judging by how stocks performed Friday, a lot of investors are pinning their hopes on belief that there’s nothing to see here, but if consumer data soften, it could point to the weaker jobs growth starting to have a negative impact. We’ll have to wait and find out.
Arguably the biggest concern right now is whether the consumer can stay healthy. One of the best-performing sub-sectors last week was the payments industry, with stocks like MasterCard (MA), Visa (V), and PayPal (PYPL) all making big statements Friday. These three names, which Barron’s calls the “MVPs,” could continue to be worth watching in coming days to see how much faith the market has in consumer health. That’s because when consumers are out spending or online spending, they tend to take out those cards more.
Nasdaq Outpaces: For most of last week it was the so-called “cyclical” sectors leading the parade. These are ones like Info Tech, Consumer Discretionary, and Communication Services that tend to perform best in a strong economy. The Nasdaq (COMP), which is heavily loaded with Info Tech stocks, is by far the leading major index this year, up nearly 17% going into the new week vs. 14.6% for the SPX and 11.4% for the Dow Jones Industrial Average ($DJI). The COMP handily outperformed its cousins on Friday with an impressive daily gain of 1.66% vs. just over 1% for the other two.
Technical Talk: It’s kind of hard to believe considering where the market was a week ago, but the S&P 500 Index (SPX) easily carved through its 50-day moving average Friday, at around 2870. This comes after the SPX fell below its 200-day moving average of around 2775 a little over a week ago, and looks like a very bullish pattern on the charts. The brief dip below long-term technical support at 2750 early this month didn’t last long, and that level—which has served as a pivot point for the SPX over the last 17 months or so—could be one to consider watching if things go south again anytime soon. Meanwhile, 2900 might be the resistance point up above.
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