The S&P 500 gapped up on the open Monday morning as the final China HSBC/Markit Purchasing Managers' Index (PMI) came in at 48.9 for April, missing the median estimate of 49.4. The hedge funds continued running up the S&P 500 material sector as they are expecting further economic stimulus measures from China as a result of the weak PMI number. The S&P 500 was unable to break out the 2,120 head resistance and pulled back. 

The U.S. Commerce Department said on Tuesday that the U.S. trade deficit jumped 43.1% to U.S. $51.4 billion in March, the largest since October 2008, as imports snapped back after business at U.S. West Coast ports returned to normal. Economists had forecast the trade deficit rising to only U.S. $41.2 billion. The weak trade data sent the S&P 500 tumbling 1.18% to test the 50-day SMA.

Most economists believe that an increase in the trade gap is enough to knock 0.15% off GDP at an annual rate, meaning a downward revision and a potential contraction in the first-quarter GDP. This could be spell trouble for the second-quarter GDP, as some of the imported consumer and capital goods likely ended up as inventories, which are already at record levels since the third-quarter of 2010. 

It was not particulary helpful to the global equity markets that Federal Reserve Chair Janet Yellen told IMF Managing Director Christine Lagarde on Wednesday that, “I would highlight that equity market valuations at this point generally are quite high,”. Yellen’s comment sent the S&P 500 into a roller coaster ride between the 50-day and 100-day SMA and ended down 0.45% for the day. 

Mr. Gary Stern, former president of the Minneapolis Fed, quickly responded to Ms. Yellen’s comment in an interview that, “Talk by itself isn’t going to turn out to be effective, … Raise interest rates, … That would be a clear way to follow through, ”. In short, it is cheap talk without follow-up.

The U.S. Department of Labor said on Friday that employers added 223,000 jobs in April, slightly lower than expectations. The unemployment rate is down to 5.4% from 5.5%. The surprise is the big revision to 85,000 jobs in March, down from the original 126,000 previously reported. 

The U.S. non-farm payrolls report looked decent, but not anything to write home about as the labor force participation rate increased just 0.1% to 62.8% last month. That means over 93 million Americans, aged 16 and older, still do not have a job or gave up looking for one in April. More investors now see the first Fed rate hike to be either in September 2015, or in 2016, which ignited the 1.35% S&P 500 rally on Friday. 

For the week, the U.S. dollar index lost 0.57% to close at 94.904 on Friday, while the 10-year U.S. Treasury bond yield gained 1.89% for the week and printed at 2.16% at the close on Friday. Despite a mixed bag of weak economic data that weighed on market sentiment, the S&P 500 managed to close up 0.37% for the week, at 2,116.10 on Friday.

The best performing S&P 500 sectors for the week were Financials and Healthcare, up 1.57% and 1.08%, respectively, due to sector rotation. Hedge funds are getting out of the energy-healthcare trade. The new trading strategy is to rotate out of technology and into financials. Maybe the hedge funds think the financial sector looks cheap now, on a relative basis.

The worst performing sectors for the week were the S&P 500 Telecommunication services and Energy sectors, down 1.52% and 1.19%, respectively. The S&P 500 Telecommunication services sector sold off as the $45 billion merger deal between Time Warner Cable [NYSE:TWC] and Comcast Corp. [NASDAQ: CMCSA] collapsed. The WTI crude oil spot price rose 0.35% for the week. Nonetheless, more hedge funds see the near-term crude oil price topping out at $62.58 per barrel.

From our technical viewpoint, the S&P 500 failed to break out the 2,120 resistance level on Monday, but managed to bounce off the 100-day SMA. The S&P 500 is now moving in an ascending triangle pattern. The projected target for the S&P 500 for the ascending triangle breakout event is 2,214, determined by adding the width at the top of the pattern to the point of breakout. The next major technical head resistances are 2,120, 2,135 and 2,180.

S&P 500 Summary: +2.78% YTD as of 05/08/15
Barclay Hedge Fund Index: +3.81% YTD 

Outperforming Sectors: Healthcare +7.14% YTD, Consumer discretionary +6.06% YTD, Materials +5.95% YTD, Information technology +3.72% YTD, and Telecommunication services +3.13% YTD.

Underperforming Sectors: Energy +1.91% YTD, Consumer staples +1.01% YTD, Industrials +0.11% YTD, Financials –0.09% YTD, and Utilities –6.87% YTD.