TRADING THE WEEK: Stocks Move on Weak Jobs Report and Fed Uncertainty
The U.S. stock market ended last week in a bit of a quandary — with the week’s major economic release painting a non-rosy outlook on the economy but at the same time boosting the capital markets by reducing the chances that the Federal Reserve won’t raise interest rates later this month.
The U.S. non-farm payroll report for May showed tepid labor market growth with only 38,000 new jobs created — a six year low. Consensus was for an increase of 162,000 new jobs. This weakness in the labor market allowed the market to move slightly higher and maintain a bullish tone as traders saw it as an indication that the FOMC would not hike interest rates — something the market had seen as a reasonable possibility after a slew of positive economic readings over the previous fortnight.
Prior to the announcement of non-farm payrolls, CNBC reported that the CME Group FedWatch tool of market sentiment saw a 21% chance of rate hike by the Fed at the June 15 -16 meeting. After the disappointing data, the same indicator registered only a 4% chance of an increase. Stocks immediately dipped on the news but eventually saw buyers re-emerge and market indexes moved higher.
“The market looks more like it wants to break out than break down, but only time will tell,” said a prop trader. “Good news is good news. And bad news is also good news.”
Federal Reserve Governor Lael Brainard said in a media report that the weak jobs data could force the FOMC to stand pat with regards to raising interest rates. Moving now, she argued, could upset the U.S. economy’s stability and slow growth. She also added that there is still more slack in the labor market to come.
Looking ahead, traders were optimistic around The Street as there were some rumblings in the initial public offering market. Last Friday Line emerged with plans of a $3 billion offering in both Asia and New York. The added supply could help the market draw buyers away from competing asset classes such as bonds – helping stock prices and boosting trading volume. The market has already enjoyed new issuance from U.S. Foods, Gypsum Management and Supply and Cotiviti Holdings — all of which were greeted by eager buyers.
Average daily trading volume as measured by Bats Global Markets was about 6.56 billion shares for the week ended June 3, rising slightly from the 6.49 billion shares for the week ended May 27.
Lastly, today Federal Reserve Chair Janet Yellen speech to the World Affairs Council of Philadelphia and could provide guidance as to what the FOMC will do in just two weeks.
This Week’s Major U.S. Economic Indicators of Interest:
|Monday|| Gallup Consumer Spending Measure
Janet Yellen Speaks
|Tuesday||Gallup Employment Cost Index
Redbook Retail Sales
|Wednesday||MBA Weekly Mortgage Applications Index|
|Thursday||Weekly Jobless Claims
Fed Balance Sheet
|Friday|| Consumer Sentiment
Treasury Budget Statement
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