Certainly the chart of the week was not in the stock market but the bond market. The yield on 10 year bonds surged over recent highs, which rattled the indexes late in the week; in fact these are levels not seen since 2011.
“Yields spiking up this week have caught many by surprise and some repricing is happening; however, the reason yields are rising are positive, not negative,” said Jamie Cox, a managing partner at Harris Financial Group, who argued that higher yields are a result of a strong economy.
In other news TRADE WARS(tm)!! with Canada seemed to have come to an end which bolstered the market Monday.
The Chinese market was closed for holiday last week but let’s see if it can continue this reversal which would indicate “those in the know” are seeing a trade deal being done…
Oil remained strong:
Housing stocks do not appear to like those rising interest rates!
For the week the S&P 500 fell 1.0% while the NASDAQ sunk 3.2%.
Economic news of interest: (1) ISM Manufacturing came in at a very strong 59.8 Monday, a tad bit below expectation, (2) ISM Services rose to 61.6 which was the 2nd highest reading on record!
The big one was of course (3) the employment report for the month of September:
The economy created a modest 134,000 new jobs in September, but it was enough to push the U.S. unemployment rate down to a 49 year low of 3.7%. The last time the jobless rate was lower was in December 1969. Economists had expected a gain of 168,000 nonfarm jobs. The average hourly wage paid to American workers rose 0.3% to $27.24 an hour. Employment gains for August and July were revised up by a combined 87,000. The government said 270,000 new jobs were created in August instead of 201,000. July’s gain was raised to 165,000 from 147,000.
“Overall, a strong report that will keep the Fed firmly on track to continue raising rates once a quarter, with the next hike likely to come in December,” said senior U.S. economist Michael Pearce of Capital Economics.
Here is the 5 day weekly “intraday” chart of the S&P 500 … via Jill Mislinski.
The week ahead…
All eyes on those bond yields.
Short term: NASDAQ broke a trend line Thursday that connected at the recent lows since summer; meanwhile the S&P 500 has been so impervious to selling it had not even touched the 50 day moving average since early July… until Friday.
This Russell 2000 had not really joined the party with the other indexes and actually fell as far as the 200 day moving average at its low Friday.
The NYSE McClellan Oscillator has been red for a long time while the major indexes have continued to rally – that is usually not the case. THAT said, the Russell 2000 has been weaker during this time and now we are seeing some of this correlation coming back even in the senior indexes. At this point we are a bit oversold so one would normally expect a bit of a bounce near term.
Long term: Still very positive for the “buy and never sell” crowd.
Charts of interest / Big Movers:
Monday, Tesla (TSLA) Chairman and Chief Executive Elon Musk settled a Securities and Exchange fraud probe. The settlement will force him to step down as chairman and cost him and the company a combined $40 million in fines. He also reportedly told employees in a weekend email that the electric-car maker is on the verge of making a profit. However, all those gains disappeared by Friday when Greenlight Capital’s David Einhorn argued that Tesla was following the same doomed path as Lehman Brothers. The criticism comes a day after Chief Executive Elon Musk took to Twitter to mock the Securities and Exchange Commission and accuse the agency of helping short sellers.
General Electric (GE) has been a bit of a disaster in 2018 but Monday the stock surged 7.1% after the industrial conglomerate said its chief executive officer, John Flannery, was being replaced after a little over a year in the role.
Tuesday, Stitch Fix (SFIX) tumbled 35% after it late Monday reported fourth-quarter earnings that beat expectations, though revenue was slightly under forecasts and it missed estimates for active clients, considered a key metric for subscription-based companies.
Thursday, Barnes & Noble (BKS) soared 22% after the bookstore chain said its board of directors has decided to enter a formal review process to evaluate “strategic alternatives” for the company.
Tilray (TLRY) is still holding up and consolidating. The Canadian based cannabis company announced the pricing of $450 million in convertible debt late Thursday, valuing the company’s stock at a 15% premium.
Have a great week and we’ll see you back here Sunday!