The Week In Review
2/7/14The major averages finished a shaky week on an upbeat note. The Nasdaq led the way, climbing 1.7% while the Dow Jones Industrial Average and S&P 500 added 1.1% and 1.3%, respectively. Thanks to the broad rally, the indices managed to register weekly gains between 0.5% and 0.8% but small caps were not as fortunate. The Russell 2000 gained 1.1%, trimming its weekly loss to 1.3%.
Prior to the open, it was reported that only 113,000 nonfarm payrolls were added in January while the Briefing.com consensus expected an increase of 175,000. Immediately after the release, equity futures and the dollar/yen pair tumbled while gold futures and Treasuries rallied. Strikingly, the moves reversed nearly as fast after the dollar/yen pair surged off its low near the 101.50 level.
Once again, the rebound in dollar/yen occurred in conjunction with the rebound in futures and continued into the session. This suggests participants remain very sensitive to the performance of the Japanese currency due to the popularity of the yen-based carry trade that benefits from rising stocks and a falling yen.
An interesting component of today's rally in the stock market, which was presumably predicated on the belief that pent-up demand will unleash better labor market and economic data in coming months, was that the Treasury market also traded higher. The benchmark 10-yr note added four ticks, pressuring its yield to 2.68%. The growth acceleration view, therefore, did not appear to be resonating as much in the fixed income market as it did in the stock market.
In the same vein, the US Dollar Index (DXY 80.65, -0.25) slipped today in a move that didn't exactly mesh with the stock market's seeming optimism about the road ahead. Also of note, gold futures rose 0.5% to $1262.90/ozt.
Just like yesterday, cyclical sectors paced the bulk of the advance. All six growth-sensitive groups posted gains between 1.1% and 1.6% with industrials ending in the lead. The sector drew strength from the likes of Boeing (BA 127.02, +4.35) and Honeywell (HON 93.16, +2.02) while transports lagged. The Dow Jones Transportation Average surged at the open and tested its 50-day moving average (7272) before surrendering a portion of the advance. The bellwether complex ended higher by 0.8% after being up nearly 1.2% in the morning.
Elsewhere among cyclical sectors, the discretionary space advanced 1.3%, extending its weekly gain to 1.9%. The discretionary sector ended the week ahead of the remaining nine groups after losing nearly 6.0% in January.
On the defensive side, health care (+1.7%) seized the lead during the afternoon while the remaining three countercyclical groupsconsumer staples (+0.9%), telecom services (+0.7%), and utilities (+0.6%)lagged. Biotechnology contributed to the outperformance of the health care sector as the iShares Nasdaq Biotechnology ETF (IBB 246.33, +9.54) surged 4.0%.
Participation was a bit above average as 751 million shares changed hands at the NYSE.
Today's data was limited to just two reports:
Nonfarm payrolls added only 113,000 jobs in January. That was up from a 75,000 (from 74,000) gain in December, but well below the Briefing.com consensus expectation of a 175,000 gain. Even though the claims data have shown improvements in labor conditions and a clear decline in layoff trends, it has not translated into employers hiring more workers. The labor market is stuck in the mud. Many analysts will be quick to blame the poor data on extreme cold and other problematic weather conditions, but if this was the case then jobs that are directly affected by the weather-such as construction-should have fallen in January. That did not happen. The construction sector actually added 48,000 new jobs in January, which was the most new jobs since 80,000 jobs were added in March 2007. Total private payrolls added 142,000 jobs in January, up from an 89,000 gain in December. The consensus expected private payrolls to increase by 161,000. The unemployment rate fell to 6.6% from 6.7% while the consensus expected the rate to remain at 6.7%.
The consumer credit report for December showed credit growth of $18.80 billion while the Briefing.com consensus expected the reading to come in at $11.50 billion. The prior month's reading was revised higher to $12.40 billion from $12.30 billion.
There is no economic data on Monday's schedule.
Week in Review: Stocks Roundtrip
The stock market began February on a sharply lower note after enduring a rough month of January. Small caps paced the Monday retreat as the Russell 2000 tumbled 3.1% while the S&P 500 fell 2.3%. For its part, the Dow Jones Industrial Average lost 2.1%, ending below its 200-day moving average (15470). Despite the sharply lower finish, the session actually started in the green. However, sellers emerged during the opening minutes and intensified their efforts after the January ISM Manufacturing Index registered a large decline (to 51.3 from 56.6). Although the ISM report itself did not cause the aggressive selloff, it added to the global growth concerns that have been percolating under the surface after China's Manufacturing PMI (50.5) fell to a six-month low while the Non-Manufacturing reading (53.4) registered an 11-month low. Furthermore, the selloff was accompanied by another wave of yen strength. Dollar/yen traded right above the 102.00 level at the start of the session, but retreated along with equities. The pair finished the trading day right under 101.00 while yen futures added 1.4%, extending their 2014 gain to 4.3%.
On Tuesday, the stock market rebounded, erasing roughly a third of Monday's losses. The Nasdaq led the way, rising 0.9% while the S&P 500 gained 0.8%. For its part, the Dow Jones Industrial Average added 0.5%, but was unable to reclaim its 200-day moving average (15474). Equities rallied steadily throughout the session in the absence of yen strength, which has been a headwind to the market since the start of the year. In fact, the yen began retreating overnight, and continued its slide into the close. Dollar/yen finished near 101.65 after starting its rally from just below the 101.00 level. Nine of ten sectors ended in the green with the discretionary space in the lead. The sector added 1.2% after Michael Kors (KORS 94.22, +2.72) and Yum! Brands (YUM 71.73, +0.56) reported above-consensus earnings.
Equities ended the Wednesday session on a mixed note. The Nasdaq and S&P 500 settled with respective losses of 0.5% and 0.2% while the Dow Jones Industrial Average ended flat. Despite its outperformance, the Dow was unable to close above its 200-day moving average (15479) for the second day in a row. The trading day began on a lower note as stocks succumbed to the pressure exerted by the Japanese yen, which strengthened again overnight. Out of the four top-weighted sectors, consumer discretionary (+0.2%), financials (-0.1%), and technology (+0.01%) outperformed while health care (-0.6%) lagged.
Stocks rallied broadly on Thursday, placing the Dow Jones Industrial Average (+1.2%) back above its 200-day moving average (15483). The S&P 500 also gained 1.2%, ending just north of its 100-day average (1772) after flirting with that level during the afternoon. The session began on an upbeat note and equities climbed through the first 90 minutes of action. Much of the advance was paced by groups that faced aggressive selling during the recent pullback, suggesting short covering played a role in the rally. Once again, the discretionary sector finished in the lead after ending January behind eight other sectors. Yen weakness also factored into the advance as the retreat of the Japanese currency calmed fears about some participants being forced out of yen-based carry trades due to strength in the funding currency. The dollar/yen pair ended the New York session right above 102.00 after starting the day near 101.20.
Nasdaq Composite -1.2% YTD
S&P 500 -2.8% YTD
Russell 2000 -4.0% YTD
Dow Jones Industrial Average -4.7% YTD