Markets, Economy

Weekly Kickstart (06/06/2016-06/10/2016)

6/6/16 8:00 AM

iStock_000000499785_Small-1Stocks were little-changed last week, with the S&P 500 posting a fractional gain of just 0.003 percent. This left the benchmark index up 2.70 percent 2016-to-date, and 1.49 percent below the record high hit in May of last year. Looking past the flat week-over-week performance, the intraday price action was actually quite choppy during the last five trading sessions as the S&P 500 oscillated between being up 0.30 percent and down 0.67 percent for the week. Much of this volatility was related to traders adjusting their positioning ahead of the big May job report from the Bureau of Labor Statistics (BLS). Indeed, most of the labor market data released earlier last week was positive but the dismal employment report on Friday definitely surprised many market participants and took the wind out of the sails for equities. Stocks initially sold off sharply in a kneejerk response to the disappointing job report but almost all of the early morning losses were pared by the close.


This mixed reaction likely meant that traders simply did not yet know how to react to the very weak employment data. Indeed, in one way the lousy job report could allow Federal Reserve officials to move slower with interest rate normalization but the softer data also signal that the labor market, and perhaps the whole economy, are possibly vulnerable to a negative shock. Speaking of rate hikes, the market-implied probability of a near-term interest rate increase unsurprisingly plunged after the release of the May job report but Cleveland Fed President Loretta Mester the very next day said in a speech that “the weak employment number has not changed fundamentally my outlook [that] the economy is definitely moving in the right direction.” Regardless of what the Federal Open Market Committee (FOMC) decides to do with monetary policy over the next few months, savvy retirement investors are likely not overly concerned because they understand that persistent and long-term participation in the market, combined with dollar-cost averaging, can help them not only benefit from rallies but also turn drawdowns into opportunities. As always, we are here to help with any questions you may have.


To recap what we learned about the economy last week, the positives included that private wages lifted, consumer spending rose, factory orders increased, the nation’s trade deficit narrowed, the official unemployment rate fell, average hourly earnings growth firmed, corporate layoff announcements declined, and the number of Americans making first-time claims for unemployment fell for the third week in a row. As for the negatives, mortgage and refinance applications slid, automobile sales declined, construction spending fell, measures of both national and regional manufacturing continued to deteriorate, growth in the U.S. services sector slowed, consumer confidence softened, the labor force participation rate dropped, and nonfarm payrolls growth plunged to a nearly 6-year low. This week the pace of economic data slows down considerably but there are still several important reports on employment, consumers, and productivity scheduled to be released, along with two potentially market-moving speeches by Federal Reserve Chair Janet Yellen later this afternoon.


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Sources: Econoday, Bloomberg, Twitter, Advisor Perspectives, Wells Fargo, Goldman Sachs, WSJ, StockCharts, FRBSL

Post author: Charles Couch