The Week In Review
9/6-9/3/13The S&P 500 eked out the slimmest of gains (+0.09 point) to register its fourth consecutive advance, maintaining its September advance at 1.4%.
Prior to the opening bell, it was reported that August nonfarm payrolls increased by 169,000, which was below the 177,000 expected by the Briefing.com consensus. Private payrolls came in at 152,000 while the consensus expected a reading closer to 180,000. More notably, July nonfarm payrolls were revised down nearly 36% to 104,000 from 162,000 while private payrolls saw a 21% revision to 127,000 from 161,000. The unemployment rate ticked down to 7.3% from 7.4%, but once again, that was the result of a drop in the labor force participation rate to 63.2%. This represents the lowest rate since August 1978. The one bright spot could be found in aggregate income, which increased 0.6%.
A recent stretch of better-than-expected data played into the expectation that the Fed may lower the pace of its asset purchases at the upcoming September 17/18 FOMC meeting. However, today's jobs report painted a more uncertain picture, which sparked a market reaction consistent with lowered expectations of tapering in the near term.
Immediately following the report, crude oil, equity futures, Treasuries, and gold futures jumped to their highs while the Dollar Index (82.15, -0.48) tumbled to its lows. Most notably, the 10-yr note saw its yield slide from 2.96% to 2.87%. However, Treasuries surrendered a portion of their gains intraday with the benchmark 10-yr yield closing at 2.94%.
The opening hour saw the S&P lose its 50-day average (1657/1658) after headlines from the conclusion of the G-20 summit indicated Russian President Vladimir Putin said his country will assist Syria in the event of an external attack. However, Russia and Syria have been allied for years, thus Mr. Putin's comments were not necessarily a "new" development. The ensuing selloff ended as the S&P bounced at its 100-day moving average (1642/1643) and regained its 50-day average in late-morning action.
Stocks slipped from their highs and the S&P once again lost its 50-day average during the final hour after reports from Al-Arabiya indicated another chemical attack has taken place in Damascus. However, the veracity of the reports could not be confirmed as Al-Arabiya attributed the report to an 'unidentified activist.'
With the continued uncertainty surrounding the situation in the Middle East, crude oil climbed throughout the day. The energy component ended higher by 2.0% at $110.54 per barrel, registering its highest close since May 2011.
Elsewhere, gold futures climbed 1.0% to $1.386.70 per troy ounce. This contributed to the strength of miners as the Market Vectors Gold Miners ETF (GDX 28.01, +0.48) advanced 1.7%.
Consumer staples (+0.1%) and utilities (+0.6%) outperformed as the retreat in yields provided the two groups with a measure of support.
Today's participation was somewhat limited as 672 million shares changed hands on the floor of the New York Stock Exchange.
Monday's economic data will be limited to the July consumer credit report, which is scheduled to be released at 15:00 ET.
Week in Review: Stocks and Yields Climb
On Monday, bond and equity markets were closed for Labor Day. Tuesday's session saw the S&P 500 add 0.4% after intraday weakness knocked the index off its high, and below its 100-day moving average. Equities displayed broad strength at the open after global indices rallied on Monday. The early gains did not hold past the initial two hours as late-morning comments from House Speaker John Boehner and Majority Leader Eric Cantor served as a reminder that the option of military action in Syria remains likely. Both Speaker Boehner and Mr. Cantor said they support the president's "call to action" with U.S. Congress scheduled to debate the issue during the week of September 9. Crude oil climbed with the remarks from the two Congressional leaders providing an additional boost. The energy component rose 0.8% to $108.55 per barrel while the energy sector added 0.6%. Commodities were strong all-around as gold futures advanced 1.2% and silver futures spiked 3.4% to $1412.30 and $24.31 per troy ounce, respectively. In addition, copper jumped 2.4% to $3.312 per pound. As a result, the materials sector finished among the leaders with a gain of 0.6%.
The market resumed its climb on Wednesday. The S&P 500 settled higher by 0.8% and regained its 100-day moving average (1640/1641) shortly after the open. The Dow and S&P started the session by chopping around their respective flat lines before the two indices began tracking the Nasdaq, which outperformed with a gain of 1.0%. Morning reports revealing Senator John McCain's tepid support for the first draft of the Syria strike proposal fueled speculation that the whole plan could be in danger of unraveling. That was enough to spark a risk rally with some short-covering activity peppered in after sellers had pressed on anticipating the plan to make its way swiftly through the Senate Foreign Relations Committee. In the end, an afternoon vote containing two McCain amendments passed through the Committee by a 10-7 vote. Stocks slipped from their highs in reaction to the results of the afternoon vote, but still managed to hold the vast majority of their gains. Meanwhile, Treasuries did not reflect much of a safety bid as the complex remained pinned to its lows. The benchmark 10-yr yield ended higher by 5 basis points at 2.894%. More notable was the move in the 2-yr yield, which added four basis points to end at 0.462%, the highest since June 2011.
On Thursday, the S&P 500 added 0.1% to register its third consecutive advance. Although stocks finished in positive territory, their gains were capped by the benchmark 10-yr yield hitting its highest levels since July 2011.Treasuries began displaying weakness overnight as the Asian session got underway. The selling paused briefly during U.S. pre-market action before a slate of better-than-expected economic reports for initial claims, second quarter productivity, factory orders, and ISM Services lent support to the belief that the Federal Reserve would begin slowing the pace of its asset purchases at the upcoming September 17/18 policy meeting. The benchmark 10-yr yield rose eight basis points to 2.98%. The continued rise in interest rates has pressured on the most rate-sensitive sectors. Consumer staples (-0.1%), telecom services (-0.8%), and utilities (-0.4%) finished at the bottom of the Thursday leader board, which widened their third quarter losses. Since the start of July, the three sectors are down 0.5%, 6.2%, and 3.2%, respectively. Meanwhile, the last countercyclical group, health care, maintained its quarter-to-date gain of 5.1% thanks to the continued strength of biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 201.55, -0.37) is higher by 16.1% this quarter. In turn, the relative strength of biotech companies has helped the Nasdaq outperformed the other indices during the third quarter.