The major U.S. indices advanced to new record highs on Friday, for the second day in a row, after investors made the most of a disappointing Employment Situation Report for May. The Nasdaq (+0.9%) led the charge, more than doubling the gains of the S&P 500 (+0.4%) and the Dow (+0.3%). For the week, the S&P 500 added 1.0%.

Thursday's bullish tone carried into pre-market action on Friday, but the Employment Situation Report for May forced investors to hit pause. The report showed a much weaker than expected gain in nonfarm payrolls (138,000 actual vs 185,000 Briefing.com consensus), decent-sized downward revisions to March and April nonfarm payrolls, and no wage growth. Still, looking at the bigger picture, the report did have some positives. For instance, nonfarm payrolls increased, wages didn't deflate, and the unemployment rate fell to a 16-year low.

In summary, the reading turned out to be another 'Goldilocks' report, tempering concerns of an aggressive path to normalization by the Fed while at the same time doing just enough to highlight the fact that the economy is still growing at a modest rate.

Treasuries moved higher immediately following the jobs report in a curve-flattening trade. The 2yr - 10yr spread decreased to 89 basis points with the 10-yr yield dropping five basis points to 2.16% and the 2-yr yield slipping two basis points to 1.27%. As one might expect, the flattening of the yield curve didn't bode well for the financial sector (-0.4%).

The only space to register a wider decline than the financial group was the energy sector (-1.2%), which was weighed down by crude oil. The energy component dropped 1.5% to $47.62/bbl following President Trump's decision to withdraw the U.S. from the Paris Climate Accord, which was announced on Thursday afternoon. The telecom services space (-0.1%) also finished in negative territory.

On the flip side, the top-weighted technology sector (+1.0%) registered yet another solid performance, extending its year-to-date gain to 21.3%. The sector's top-performing component was Broadcom (AVGO 254.53, +19.94), which added 8.5% on better than expected earning/revenues and upbeat guidance. 

Meanwhile, Apple (AAPL 155.45, +2.27), Amazon (AMZN 1006.73, +10.78), Alphabet (GOOGL 996.12, +7.83), Facebook (FB 153.61, +2.08), and Microsoft (MSFT 71.76, +1.66) underpinned the tech sector, and the Nasdaq, with gains between 0.8% and 2.4%. The biotech industry also contributed to the Nasdaq's outperformance, evidenced by the 1.7% increase in the iShares Nasdaq Biotechnology ETF (IBB 295.79, +4.90).

The health care (+0.6%), industrials (+0.5%), and real estate (+0.9%) sectors finished ahead of the broader market, but the remaining groups settled with modest gains between 0.1% (utilities) and 0.4% (consumer discretionary).

Also of note, the New York Times reported late on Friday afternoon that President Trump has selected Randal Quarles and Marvin Goodfriend as candidates to fill two of the three open positions for Federal Reserve's Board of Governors.

Reviewing today's economic data:

• Employment Situation Report for May
  • May nonfarm payrolls hit 138,000 while the Briefing.com consensus expected a reading of 185,000. The prior month's reading was revised to 174,000 from 211,000. Nonfarm private payrolls added 147,000 while the Briefing.com consensus expected an increase of 172,000. The previous month's reading was revised to 173,000 from 194,000.
  • The unemployment rate fell to 4.3% (Briefing.com consensus 4.4%). Average hourly earnings increased 0.2% (Briefing.com consensus 0.3%), while the previous month's reading was revised to 0.2% (from 0.3%). The average workweek was reported at 34.4, which is in line with the Briefing.com consensus. The previous month's reading was left unrevised at 34.4.
  • The key takeaway from the employment report is that wage inflation continues to be dormant despite increased hiring activity. That understanding will temper concerns about the Fed having to walk an aggressive rate-hike path.
• Trade Balance Report for April
  • The April trade balance showed a deficit of $47.6 billion while the Briefing.com consensus expected the deficit to hit $44.3 billion. The previous month's deficit was revised to $45.3 billion from $43.7 billion.
  • The key takeaway from the report is that it will create a drag on second quarter GDP growth since the real trade deficit for April was higher than the first quarter average.

On Monday, investors will receive the revised readings of first quarter productivity (Briefing.com consensus -0.2%) and unit labor costs (Briefing.com consensus 2.4%) at 8:30 ET, April Factory Orders (Briefing.com consensus -0.2%) at 10:00 ET, and the May ISM Non-Manufacturing Index (Briefing.com consensus 57.0) at 10:00 ET.

• Nasdaq Composite +17.1% YTD
• S&P 500 +8.9% YTD
• Dow Jones Industrial Average +7.3% YTD
• Russell 2000 +3.6% YTD

Week In Review: Broken Record

The stock market got off to a sluggish start this week as investors begrudgingly returned to their trading desks following the extended Memorial Day weekend. However, things picked up in the second half of the week as employment data for the month of May came into focus. The S&P 500 ended the week higher by 1.0%.

Equities ticked down on Tuesday and Wednesday, breaking the S&P 500's seven-session winning streak, as the energy and financials sectors weighed on the broader market. Crude oil influenced the energy sector lower following reports of heightened production in Libya while cautious comments about second quarter results from major players negatively impacted the heavily-weighted financial group.

Things turned around on Thursday after the ADP National Employment Report for May soundly beat expectations. The S&P 500 hit some technical resistance at its then all-time high, but a bullish EIA inventory report and solid leadership from the financials, consumer discretionary, and health care sectors helped the benchmark index, and its peers, advance to new record highs.

The positive momentum carried into pre-market action on Friday, but a disappointing Employment Situation Report for May forced investors to hit pause. Specifically, nonfarm payrolls (138,000 actual vs 185,000 consensus), nonfarm private payrolls (147,000 actual vs 172,000 consensus), and average hourly earnings (0.2% actual vs 0.3% consensus) all missed expectations.

However, in the grand scheme of things, the jobs report wasn't all that bad; nonfarm payrolls still increased, there was no wage deflation, and the unemployment rate fell to a 16-year low of 4.3%. At the risk of sounding like a broken record, it made for another 'Goldilocks' report, neither too hot nor too cold, highlighting modest economic growth without amplifying worries of inflation.

Investors took the report in stride, pushing the major averages to new record highs for the second day in a row. The technology sector led the charge, but the energy and financials spaces showed relative weakness, yet again. A flattening of the yield curve weighed on financials while energy moved lower with crude oil following President Trump's decision to pull out of the Paris Climate Accord.

The fed funds futures market still points to the June FOMC meeting as the most likely time for the next rate-hike announcement with an implied probability of 95.8%, up from last week's 83.1%.