WEAK JOBS REPORT PUSHES BOND YIELDS AND DOLLAR SHARPLY LOWER -- WINNERS ARE BONDS, UTILITIES, AND GOLD -- BANKS ARE LOSERS -- FOREIGN MARKETS JUMP ALONG WITH CURRENCIES -- S&P 500 HOLDS UPTREND -- HEALTHCARE SECTOR TURNS UP
WEAKEST JOB REPORT IN FIVE YEARS SURPRISES EVERYONE... Friday's job report of only 38,000 jobs created in May was the weakest in more than five years. And it pretty much shocked everyone. Some of the market reactions, however, were reasonably predictable. Interest rate yields tumbled along the entire yield curve. Chart 1 shows the 10-Year Treasury Yield (TNX) plunging 10 basis points and closing near the lowest level since February. Naturally, that pushed bond prices sharply higher. Chart 2 shows the 20+ Year Treasury Bond iShares (TLT) surging to a four-month high. The reason for that sharp reaction was that the weak job report pretty much took a June rate hike off the table, and may have jeopardized Fed plans for a hike sometime over the summer. The two-year yield, which is most sensitive to a rate hike, fell even more than the long bond. The plunge in bond yields helped some stock groups like utilities and hurt others like banks.
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Chart 1
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Chart 2
UTILITIES SURGE AS BANKS WEAKEN... With bond prices surging, it's no surprise to read utilities were the day's strongest group. Chart 3 shows the Dow Jones Utility Average surging 1.6% and touched a new record high. Utilities are the closest thing to "bond proxies" in the stock market and track bond prices were closely. [Dividend-paying staples and REITs also had a good day on the plunge in yields. Also not surprising is that financials -- and banks in particular- were the day's weakest group. Banks have been rising lately on hopes for a Fed rate hike and higher bond yields. They fell yesterday when rates plunged. Chart 4 shows the KBW Bank Index ($BKX) falling -2.2% at week's end. [Brokers and insurers also fell]. The bank drop could have been worse. The last bar in Chart 4 shows the bank index closing well off its low for the day and still trading above its 200-day moving average. In fact, the entire market made back most of its losses by the close on Friday. A rally in foreign stocks may have helped. More on that shortly.
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Chart 3
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Chart 4
FALLING DOLLAR BOOSTS GOLD... The other big casualty from the weak job report was the dollar. Chart 5 shows the U.S. Dollar Index ($USD) tumbling -1.6% on Friday and pushing it back below its (blue) 50-day line. The USD also failed a test of a falling trendline drawn over its January/March highs. The plunging dollar helped lift most commodities, and gold in particular. Chart 6 shows the spot price of gold surging $33 on Friday (+2.7%). Gold miners surged 11%. Newmont Mining (NEM) saw a 9% gain which made it the biggest gainer in the S&P 500. Freeport McMoran (FCX) also led with a 4.2% gain on a jump in the price of copper. Most other commodities also gained which gave a boost to material stocks. Energy shares dipped along with the commodity. The falling dollar boosted foreign currencies and stocks. That was especially true of commodity-producing countries in developed and emerging markets.
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Chart 5
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Chart 6
FOREIGN STOCKS BOUNCE... An encouraging sign came from foreign stock ETFs which had a strong Friday. Chart 7 shows the MSCI EAFE iShares (EFA) bouncing off their moving average lines. [EAFE stands for Europe Australasia and the Far East]. Some of the day's biggest gainers were commodity exporters like Australia and Canada. Chart 8 shows the MSCI Emerging Markets iShares (EEM) gaining an even more impressive 1.5% on Friday and climbing back over its (blue) 50-day average. Two of its biggest gainers came from commodity exporters like Brazil and Russia. It's normally a good sign for the U.S. when foreign stocks are climbing. That may help account for the late rebound in the states on Friday. [Foreign stock ETFs are quoted in U.S. Dollars. As a result, they get a bigger boost when the dollar is dropping and foreign currencies rising].
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Chart 7
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Chart 8
S&P 500 STILL IN UPTREND -- HEALTHCARE GETS BETTER... Friday's early stock selloff didn't do much damage to the market's current uptrend. By day's end, the S&P 500 had regained most of it morning losses and ended only marginally lower (-0.29%). Friday's action also saw more big board advances than declines. Chart 9 shows the the S&P 500 still testing its April high and well above its moving average lines. In my view, its overall chart pattern still looks bullish. Besides utilities, the week's most impressive gains came from the healthcare sector. Chart 10 shows the Health Care SPDR (XLV) closing above its April high on Thursday, and managing to hold that breakout on Friday. Its relative strength line (top of chart) rose during the week as well. Healthcare providers led the sector higher followed by biotechs and pharmaceuticals. My Wednesday and Thursday messages showed several individual stock leaders in all three groups.
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Chart 9
