The Week In Review
The stock market ended the week on a flat note, locking in its second consecutive weekly decline. The S&P 500 shed 0.1%, losing 0.7% for the week while the Nasdaq Composite (+0.2%) outperformed, ending essentially unchanged (-0.03%) in the first week of June.
Friday morning featured a whirlwind of global and economic developments, but they barely registered with the market when the dust settled.
Starting in Europe, Greece did not make today's debt payment to the International Monetary Fund, opting instead to bundle all June payments into a single installment of EUR1.60 billion, to be paid on June 19. This will allow discussions to continue, but the developments weighed on investor sentiment in Europe. After European markets closed, Greek Prime Minister Alexis Tsipras addressed the Greek parliament, saying the proposals received from the lenders are unrealistic and that debt restructuring must be included in any potential agreement.
Staying in Europe, the Organization of the Petroleum Exporting Countries met in Vienna, electing to maintain its current production target at 30 million barrels per day. Crude oil struggled in the early going, revisiting last week's lows, but ended higher by 1.9% at $59.13/bbl. Meanwhile, the energy sector (+0.7%) ended in the lead while only two other groups—financials (+0.6%) and industrials (+0.1%)—registered gains. Going back to oil, the energy component overcame greenback strength that sent the Dollar Index higher by 0.9%, which resulted from a better than expected Nonfarm Payrolls Report for May.
Specifically, the strong report revealed the addition of 280,000 jobs while the Briefing.com consensus expected a reading of 225,000. More notably, average hourly earnings increased 0.3% (Briefing.com consensus 0.2%), which boosted aggregate earnings by 0.5% in May.
The Fed has stated multiple times that the first fed funds rate hike will be contingent on data trends that show the inflation rate gradually moving toward its 2.0% target. The 0.3% increase in hourly wages and the 0.5% increase in aggregate earnings place the economy on that path.
Treasuries plunged in immediate reaction to the report with the 10-yr yield spiking as many as 13 basis points to 2.44% before ending at 2.40% (+9 bps). Also of note, selling in the 2-yr note pushed its yield up to 0.71% (+5 bps), its highest level since 2010. For the week, the benchmark 10-yr yield jumped 28 basis points.
Eight sectors registered losses with defensively-oriented utilities (-1.3%) and consumer staples (-1.4%) ending behind other groups. Both sectors were pressured by high-yielding members as they lost some attractiveness relative to Treasuries. For the week, the utilities sector lost 4.2%.
Elsewhere among countercyclical groups, the health care sector (unch) settled just below its flat line, but that masked afternoon strength in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 367.04, +4.25) gained 1.2% and helped the Nasdaq Composite end ahead of the broader market while the S&P 500 hit resistance at its 50-day moving average (2,100) early on, and retreated into the afternoon amid weakness in most sectors.
Also contributing to the Nasdaq's strength was the high-beta chipmaker group. The PHLX Semiconductor Index added 0.1%, but losses among large cap members like Intel (INTC 31.84, -0.47) and ASML (AMSL 109.10, -1.49) offset gains in 21 of 30 index components. Smaller index components displayed continued strength amid speculation more mergers and acquisitions could be in the works; however, the broader technology sector (-0.3%) ended among the laggards.
Unlike technology, the second largest sector by weight—financials (+0.6%)—spent the day in positive territory with banks expected to benefit from rising rates at the longer end of the curve. For the week, the financial sector gained 0.8%.
Also of note, the industrial sector (+0.1%) eked out a slim gain thanks to newfound strength among transportation names. The Dow Jones Transportation Average climbed 0.9%, extending its weekly advance to 2.5%.
Today's participation was ahead of recent averages with more than 766 million shares changing hands at the NYSE floor.
Economic data released included Nonfarm Payrolls and Consumer Credit:
Nonfarm payrolls added 280,000 jobs in May after adding a downwardly revised 221,000 (from 223,000) in April while the Briefing.com consensus expected an increase of 225,000
Nonfarm private payrolls increased by 262,000 jobs (Briefing.com consensus 225,000), up from a 206,000 increase in April
Average hourly earnings increased 0.3% in May (Briefing.com consensus 0.2%) after increasing only 0.1% in April. The May increase, combined with increase in payrolls, pushed aggregate earnings up 0.5%
The average workweek was flat at 34.5 hours
The unemployment rate increased to 5.5% in May from 5.4% in April while the consensus expected no change at 5.4%
The entire increase in the unemployment rate was due to discouraged workers returning to the labor force. If the labor force remained at its April level, the unemployment rate would have declined to 5.3%
The Consumer Credit report for April showed an increase of $20.50 billion, which was higher than the Briefing.com consensus estimate of $16.80 billion
The prior month's credit growth was revised to $21.40 billion from $20.50 billion
There is no economic data on Monday's schedule.
Nasdaq Composite +6.6% YTD
Russell 2000 +4.6% YTD
S&P 500 +1.6% YTD
Dow Jones Industrial Average +0.2% YTD