The S&P 500 opened lower on Monday morning after digesting the news from China and a comment from San Francisco Fed President John Williams about a Fed rate hike. The People's Bank of China (PBoC) said on Sunday that they cut the benchmark lending rate by 25 basis points to 5.1%, the third cut in the past six months.
On the CNBC morning show before Monday’s market open, San Francisco Fed President John Williams gave his opinion that last Friday’s jobs data showed "good momentum" for the rest of the year, and that a rate hike is on the table at every FOMC meeting. Some economists however, believe that the results of jobs report would not be strong enough to cause the Federal Reserve to raise rates soon.
In fact, the U.S. non-farm payrolls report might look 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.
The S&P 500 plunged 0.83% out of the gate on Tuesday after the Labor Department said that their Job Openings and Labor Turnover Survey (JOLTS) showed a 2.88% drop in the job postings to 5.0 million in March from 5.144 million in February, missing expectations of 5.108 million. It appears like a zero sum, as there were 5.0 million total separations in March. There were 2.8 million quits in March, little changed from February. The JOLTS data were picked from 16,400 companies out of the 9 million firms on the Labor Department file.
More weak economic data came from the Bureau of Economic Analysis (BEA), the U.S. Commerce Department, as the BEA said on Wednesday that core retail sales excluding automobiles, gasoline, building materials and food services were unchanged in April. Economists had expected an increase of 0.5%. According to the Wall Street Journal, J.P. Morgan Chase has now revised their first-quarter U.S. GDP estimate from -0.8% to -1.0%, while cutting its second-quarter forecast by 0.5% to 2%.
As stated by the Fed, their rate decision is data dependent and the data are weak. According to MarketWatch, former Fed Vice Chairman Donald Kohn thinks that a June rate hike is off the table, following weaker-than-expected April retail sales. Some Wall Street strategists believe that the Fed may begin hiking the rate later this year, or in early 2016.
For the week, the U.S. dollar index lost 1.82% to close at 93.18 on Friday, while the 10-year U.S. Treasury bond yield gained 0.28% for the week and printed at 2.148% at the close on Friday. Despite a mixed bag of weak economic data that weighed on market sentiment and that it was options expiration week, the S&P 500 managed to close up 0.31% for the week, at a new all-time closing high of 2,122.73 on Friday.
The best performing S&P 500 sectors for the week were Consumer Staples and Healthcare, up 1.18% and 1.13%, respectively, due to sector rotation. The worst performing sector for the week was the S&P 500 Energy sector, down 1.68%, after a 1.19% decline last week. Consumer staples stocks are back in favor, as the market believes that treasury yields may not rise soon. Hedge funds are getting out of the energy-healthcare trade.
The WTI crude oil spot price rose 0.82% to $59.96 per barrel 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 closed above the key technical resistance level of 2,120. One may want to pay attention that the ascending triangle breakout is confirmed. 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 rising wedge is now emerging in the S&P 500 chart pattern. The next major technical head resistances are 2,135, 2147 and 2,180 while the 2,120 becomes the near-term support.
S&P 500 Summary: +3.1% YTD as of 05/15/15
Barclay Hedge Fund Index: +3.72% YTD
Outperforming Sectors: Healthcare +8.27% YTD, Consumer discretionary +5.99% YTD, Materials +5.62% YTD, Information technology +4.49% YTD and Telecommunication services +3.37% YTD.
Underperforming Sectors: Consumer staples +2.19% YTD. Industrials +0.86% YTD, Energy +0.23% YTD, Financials –0.32% YTD and Utilities –6.65%
YTD. |