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With Jobs Data In Rear View Mirror, Retail Sales, PPI Among Key Data Ahead

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May 9, 2016

(Monday Pre-Market) With most of the big earnings and the April jobs report now behind, two key data reports dominate the coming week: Retail sales and the Producer Price Index (PPI). Those data, both scheduled for next Friday, could hold clues about consumer behavior.

Before leaping ahead to discuss those reports, let’s look a little more closely at Friday’s monthly jobs report. The headline number, of course, seemed a little disappointing, coming in well under expectations at 160,000 jobs created compared with expectations for 203,000. But digging a little further, the overall news wasn’t as bad as the headline number might have indicated, and in fact, there were some good things under the surface. In fact, it could be argued we’re seeing quality over quantity.

For instance, look where the jobs were created. Fields that offer many people long-term, high-paying careers such as business services, health care and financial, were among those showing stronger job creation in April. Professional and business services added 65,000 jobs in April and health care and social assistance grew by 38,200 jobs. Retail jobs, meanwhile, actually fell slightly last month. Wages rose, and so did hours worked.

Markets stumbled early Friday after the jobs report, then came back from their lows before falling again by midday. Key support for the S&P 500 Index (SPX) at 2050 got broken during the week, and that remains an important technical level. If the market breaks convincingly below 2050, analysts say support under that is down around 2020.

Another important level to watch is 1.7% in the 10-Year Treasury yield. The 10-year yield has climbed toward the key 2% level twice in recent months but failed to touch that mark each time. As of midday Friday, it was back around 1.75%. The yield last fell significantly below 1.7% in February when the stock market was at much lower levels than today.

S&P 500

FIGURE 1: DOWNSIDE SUPPORT SEEN AT 2020.

The S&P 500 (SPX), plotted through midday Friday on the TD Ameritrade thinkorswim platform, had moved under the key 2050 level, and support below that is near 2020. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Can Stronger Auto Sector Boost Retail Sales? Last week, good news came in the form of robust April auto sales that might put automakers on track for another strong year. This coming Friday marks the scheduled release of April retail sales, and it could be interesting to see if the big month for autos helped retail sales recover from the disappointing 0.3% drop seen in March. The ironic thing is, retail sales fell in March mainly due to poor auto sales that month; with autos factored out, March retail sales actually climbed 0.2%, helped in part by increased spending on gasoline as energy prices rose. In the auto sector, easy interest rates and low gas prices helped bring customers into dealerships during April. So far this year, retail sales numbers have mostly disappointed, either remaining flat or falling each month. PPI next Friday is also worth watching. In March, PPI fell 0.1%, a drop blamed on weakness in the global economy.

Flirting With $1,300: Front-month gold futures briefly climbed above the psychological $1,300 level intraday last week but, as of midday Friday, hadn’t closed above $1,300 since August 2014. Friday’s disappointing U.S. jobs report sent gold futures up toward $1,300 again. Gold tends to do best in times of uncertainty and when the dollar sags, both of which have been the case in recent weeks. A surge above $1,300 would be bullish for gold, but not necessarily a good sign from an overall market perspective, because gold is typically where investors put their money when they’re looking for safety.

Still a Few Earnings to Come: The vast majority of earnings season is over, but a few big names have yet to cross the finish line, including Walt Disney (DIS), scheduled to report after the close on Tuesday and Macy’s (M), scheduled for before the open on Wednesday. Both of these reports could give further insight into consumer spending prior to Friday’s retail sales report. As of the middle of last week, 68% of companies reporting in Q1 beat earnings expectations, compared with the historic 66% average for the quarter, according to S&P Global Market Intelligence. Of course, it’s worth repeating that expectations were relatively low for most sectors, and S&P Global expects only three of 10 S&P sectors (consumer discretionary, health care and telecom services) to have positive EPS growth. That would mark the fourth quarter in a row in which those three sectors led earnings results.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR.

Source: Briefing.com

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