STRONG JOBS REPORT PUSHES MARKET HIGHER -- SOX LEADERSHIP CONTINUES -- JUMP IN TRANSPORTS BOOSTS INDUSTRIALS -- RISING RATES HURTS BANKS AND HOMEBUILDERS
SOX PULLS NASDAQ HIGHER... A stunning jobs report today turned stocks sharply higher. The creation of 308,000 new jobs in March was the highest in four years and three times what economists were expecting. The intermarket reactions were predicable. Stocks jumped sharply while bonds fell. Rising rates pushed the dollar higher which caused profit-taking in gold. Economically-sensitive stocks jumped while rate-sensitive stocks fell. Once again, technology was the strongest sector. The Semiconductor (SOX) Index led the Nasdaq market higher on Friday. A report of record global semiconductor sales pushed the SOX Index 3.7% higher today and pushed it convincingly over its 50-day moving average. Its rising relative strength line shows the chip group leading the Nasdaq higher. The Nasdaq 100 was the day's strongest index (+2.5%) and also cleared its 50-day average (Chart 2). Both tech indexes also broke three-month down trendlines. More impressive was the daily volume which has so far been missing from the recent rebound. Friday's Nasdaq volume was the heaviest in over a week. Nasdaq advancers led decliners by almost two-to-one. The relative strength line under the Nasdaq 100 Shares show it leading the S&P 500 higher. As I've said many times, technology leadership is a good thing. Internet stocks gained more than 3% today as well. Chart 3 shows the Internet Holders (HHH) hitting a two-month high on rising volume.
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SMALL STOCKS LEAD LARGE CAPS HIGHER... As they did throughout the week, small cap stocks were stronger than large caps again on Friday. The S&P 600 Small Cap Index (and the Russell 2000) both hit a new closing highs on Friday. On Monday, I showed the small cap stocks rising above their 50-day day averages and suggested the S&P 500 Large Cap Index would soon follow suit. Chart 5 shows the S&P 500 breaking through its 50-day line on Friday in convincing fashion.
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JUMP IN TRANSPORTS HELPS INDUSTRIALS... This time last week the Dow Transports were starting to bounce off their 200-day moving average (helped by a decline in oil prices). This week the transports broke through their 50-day average and were the strongest of the three Dow averages. That gave boost to the Dow Industrials, which closed just a shade over their 50-day line. Dow Theory holds that in a bull market the industrials and transports have to move up together. Now they are. The rate-sensitive utilities lost ground on Friday as bond yields soared on the strong jobs report.
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FINANCIALS LOSE GROUND... A falling bond market today took a toll on rate-sensitive financial stocks which fell heavily. Bank Regional Holders were among the hardest hit. The ETF fell sharply from its 50-day moving average today on very heavy volume. Homebuilders were also sold. Centex gapped under its 50-day line on rising volume. REITs even lost some ground. These are groups that are vulnerable to rising interest rates. And rates did rise sharply today.
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10-YEAR YIELDS SOAR OVER 4%... While today's surprisingly strong jobs report was good for stocks, it was very bad for bonds. Bond prices fell more than two full points. The 10-year T-note, which rises when prices fall, surged all the way to 4.14%. That certainly seems to confirm the idea that long-term rates are finally starting to move higher. There's good and bad news in that. It's good for economically-sensitive stocks that do well in a stronger economy. It's bad for rate-sensitive stocks that are hurt by rising rates. In time, rising rates can be a bad thing. Over the short-run, however, rising rates are viewed as confirmation that the economy is getting stronger and the job picture is finally improving. This week's sector rotations showed a more optimistic market. The top sectors were technology, materials, and industrials. The weakest were financials, energy, utilities, and consumer staples. That rotation is reversing the more cautious mood of the market during the first quarter when consumer staples and energy were the leades and technology was the laggard.
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