The S&P 500 jumped 1.53% on Friday, to close at 2,129.90, up 1.28% for the week, after the Labor Department said that 287,000 jobs were added in June, while Wall Street economists had forecasted only 175,000 jobs. The June nonfarm payrolls number could be an outlier, as the margin of error may be as high as plus or minus 115,000. May's figure was revised downward to 11,000 from 38,000 and April's number was revised upward from 123,000 to 144,000. On Thursday, payroll processor ADP said that U.S. private employers added 172,000 workers in June.
About 117,000 jobs came from healthcare, social assistance, leisure and hospitality, meaning low wages. Employment in telecommunications rose by 28,000, reflecting the return of workers from Verizon's strike. Average hourly wages increased 65 cents to $25.61, or 2.6% year-on-year, despite minimum wage hikes in certain cities and states.
The probability of a rate hike at the September 21 FOMC meeting, based on the 30-day prices of federal funds futures, jumped from 0% to 11.7%, while the probability of a no rate hike dropped from 96.4% to 86.2%, according to data from the CME Group as of July 8.
For the week, the U.S. dollar index inched up 0.63%, to close at 96.327 on Friday, despite the blowout jobs report. The yield of 10-year U.S. Treasury Note tumbled another 6.16% for the week to close at a record low of 1.37%. Bond investors sold off 2-year U.S. Treasury Notes, which the yield is sensitive to the Fed’s rate-policy, and moved to 10-year U.S. Treasury Notes. The yield spread between the 10-year and 2-year U.S. Treasury Notes took a 10.59% nosedive for the week, to close at 0.76 percentage points, a level not seen since 2007, as concerns rise that a possible Fed rate hike could lead to a recession.
The global bond markets continued to be rattled, as the 10-year Japanese government bond
(JGB) yield dropped to negative 0.282% at the close on Friday, while the 10-year German bund yield printed at negative 0.196%, both record lows.
Many Wall Street economists may not be aware that the S&P 500 Utilities sector is now trading near its all-time high, as money has rotated into safe-havens. The last time Utilities outperformed the broader market, a U.S. recession followed.
The best performing S&P 500 sectors for the week were Consumer discretionary and Healthcare, up 2.27% and 1.99%, respectively. The worst performing sectors for the week were again Energy and Telecommunication services, down 1.12% and 1.11%, respectively.
Since August 2015, the S&P 500 has been positively correlated with the WTI crude oil price. Traders, including algorithmic and high-frequency traders (HFT), may be creating greater profit opportunities by coupling the volatility and price swings in the crude oil futures market with the S&P 500 index.
The WTI crude oil spot price tumbled 8.44% for the week, closing at $45.12 per barrel on Friday, while the Brent crude price took an 8.09% nosedive for the week to close at $46.55 per barrel, following a bearish research note from JPMorgan Chase & Co. and Bloomberg's report of an increase in Nigerian crude oil production.
Analysts at JPMorgan Chase sent out a research note on June 29 telling clients that China is likely close to filling its strategic petroleum reserves (SPR) after doubling purchases for it this year as prices plunged. Stopping shipments for the reserve would wipe out about 15% of China's crude oil imports. Bloomberg reported on Monday that Nigeria pumped an average 1.53 million barrels per day (bpd) last month, an increase of about 90,000 bpd from May.
The Energy Information Administration (EIA) weekly U.S. oil inventory report on Thursday showed a decline of 2.2 million barrels to 524.4 million barrels in the week ending July 1, compared to analysts’ expectations for a draw-down of 2.6 million barrels. The American Petroleum Institute (API) inventory data on Wednesday showed U.S. crude inventories fell another 6.7 million barrels for the week.
Separately, the EIA said the weekly U.S. crude oil production decreased by 194,000 bpd for the week ending July 1, 2016, to 8.428 million bpd. Weekly U.S. crude oil output has fallen about 12.30% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 10 from the previous week, to 351, compared to 316, when the rig count hit the low on June 6.
S&P 500 Summary: +4.21% YTD as of 07/08/16
Barclay Hedge Fund Index: +0.73% YTD
Outperforming Sectors: Utilities +21.30% YTD, Telecommunication services +21.28% YTD, Energy +13.51% YTD, Consumer staples +10.17% YTD, Materials +7.54% YTD, and Industrials +7.41% YTD,
Underperforming Sectors: Consumer discretionary +3.08% YTD, Healthcare +2.11% YTD, Information technology +0.67% YTD, and Financials –3.95%