The Week In Review


The major averages finished the first week of June on an upbeat note with small-cap stocks leading the charge. The Russell 2000 gained 1.0%, extending its weekly advance to 2.7%, while the S&P 500 added 0.5% to finish the week higher by 1.3%.
Stocks spent the first 90 minutes of action in a steady climb, while the remainder of the session saw range-bound action just below the highs.
The early charge took place after the Nonfarm Payrolls report confirmed that recent trends in the labor market remain intact. Specifically, the addition of 217,000 payrolls ( consensus 220,000) reflected a gradual improvement in the labor market, while the participation rate remained low (held at 62.8%), and hourly earnings grew modestly (+0.2%).
The middle-of-the-road report was not weak enough to cause concerns about the overall economy, but it was also not strong enough to lead to concerns about faster policy tightening from the Fed. As such, equity indices continued on their recent course.
After showing relative weakness over the past few weeks, small-cap stocks outperformed their blue chip counterparts. As a result of the increased risk tolerance among investors, the Russell 2000 rallied 2.7% this week, finishing well ahead of the Dow Jones Industrial Average, which added 1.2%.
Fittingly, growth-sensitive sectors paced today's advance with five of six cyclical groups ending ahead of the broader market. The industrial sector (+1.0%) finished in the lead, while energy (+0.8%) and financials (+0.7%) followed.
Industrials received broad support from transports and defense contractors. The Dow Jones Transportation Average (+0.9%) extended to a fresh record high, pushing its year-to-date gain to 10.9%. Defense contractors, meanwhile, were underpinned by General Electric (GE 27.18, +0.41). The largest sector component rose 1.5%, while the PHLX Defense Index climbed 0.8%.
Elsewhere, the energy space was boosted by Dow component ExxonMobil (XOM 101.60, +1.05), which rallied 1.0%. Another Dow member, Chevron (CVX 124.19, +0.67), kept pace with ExxonMobil during the session, but narrowed its gain to 0.5% into the close. For its part, crude oil added 0.3% to $102.77/bbl.
Also of note, the financial sector extended its weekly gain to 2.3%, solidifying its spot atop the leaderboard. The industrial sector was the only other group to add more than 2.0% for the week (2.2%), while the remaining cyclical groups advanced between 1.2% and 1.8%.
On the countercyclical side, the telecom services sector (unch) lost 1.2% for the week, while consumer staples (+0.3%), health care (-0.1%), and utilities (-0.4%) posted respective weekly gains of 0.3%, 0.7%, and 0.7%.
With stocks ending on their highs, the CBOE Volatility Index (VIX 10.78, -0.90) got crushed again, cratering lower by 7.6% as participants did not see the need to hedge their risk exposure. The near-term volatility measure ended at its lowest level since early 2007.
Treasuries displayed some intraday volatility, but finished the day little changed. The 10-yr note slumped ahead of the jobs report, but rallied immediately after. The gains did not hold as the benchmark note slipped back to lows over the course of the session. The 10-yr note shed three ticks with its yield rising one basis point to 2.59% after notching a low at 2.53%.
Once again, participation was well below average with 629 million shares changing hands at the NYSE floor.
Taking another look at today's data:
Nonfarm payrolls increased by 217,000 ( consensus 220,000)
April nonfarm payrolls were revised to 282,000 from 288,000
Total private payrolls increased by 216,000 ( consensus 230,000)
April private payrolls were revised to 270,000 from 273,000
The unemployment rate held at 6.3% ( consensus 6.4%)
The U6 unemployment rate, which also accounts for marginally attached workers and people employed part-time for economic reasons, dipped to 12.2% from 12.3%
Average hourly earnings increased 0.2% ( consensus 0.2%)
The average workweek was 34.5 hours ( consensus 34.5)
Consumer credit increased a robust $26.80 billion in April from an upwardly revised increase of $19.50 billion (from $17.50 billion) in March. That April figure was well above the consensus estimate of $15.00 billion.
Revolving credit increased by $8.80 billion, from $861.60 billion to $870.40 billion, suggesting consumers were doing more purchasing with credit cards
Once again, though, it was non-revolving credit that led the increase, surging $18.00 billion to $2,304.60 billion from $2,286.60 billion
Monday's session will be free of noteworthy economic data.

S&P 500 +5.5% YTD
Nasdaq Composite +3.5% YTD
Dow Jones Industrial Average +2.1% YTD
Russell 2000 +0.1% YTD
Week in Review: Small-Caps Surge

The stock market kicked off June on an unassuming note. The S&P 500 added 0.1% after spending the bulk of the day near its flat line, while the Nasdaq Composite (-0.1%) and Russell 2000 (-0.5%) underperformed throughout the session. Equity indices displayed slim gains at the open, but small-cap stocks struggled from the get go. The major averages then had the rug pulled out from under them after a disappointing ISM Index for May (53.2 versus consensus 55.6) crossed the wires. Although stocks slumped to lows in reaction to the report, they were able to trim their losses over the next 90 minutes. The Nasdaq and Russell 2000 could not return into positive territory, while the Dow and S&P 500 managed to regain their flat lines. The recovery in the blue chip indices was assisted by headlines indicating that the original ISM report did not contain the correct seasonal adjustment data. Those headlines were accompanied by reports suggesting 56.0 was the correct reading for May, but when the final release from the ISM crossed the wires, it revealed that the index climbed to 55.4 and not 56.0.

On Tuesday, the stock market finished on a modestly lower note, but small-cap stocks underperformed once again. The Russell 2000 slipped 0.2%, while the S&P 500 snapped its three-day win streak, shedding less than a point. Equity indices faced an uphill climb from the opening bell, but the S&P 500 was able to cut the bulk of its losses during the initial 45 minutes of action; however, the early rebound attempt was stonewalled by the underperformance of small-caps. With high-beta names unable to gain any significant traction, the benchmark index returned to its earlier low. The S&P 500 then staged another recovery, which placed it right below its flat line by the close. To be sure, the (nearly) flat finish reflected a lack of concerted sector leadership during the trading day. On the cyclical side, energy (+0.3%) and financials (+0.1%) posted modest gains, while the remaining four sectors lost between 0.1% and 0.3%.

The major averages finished the Wednesday session on a modestly higher note with the Nasdaq Composite (+0.4%) in the lead. Like the Nasdaq, the Russell 2000 (+0.4%) also outperformed the S&P 500 (+0.2%), while the Dow Jones Industrial Average (+0.1%) lagged throughout the session. For the third day in a row, the stock market maintained a narrow range amid spotty sector leadership. Trading volume remained light with just 579 million shares changing hands at the NYSE versus a long-term average of 700 million. The quiet trading environment was a reflection of a wait-and-see approach employed by investors ahead of Thursday's policy decision from the European Central Bank and Friday's U.S. Nonfarm Payrolls report.

The stock market finished the Thursday session on an upbeat note after receiving a shot in the arm from an easing announcement made by the European Central Bank. Small-cap stocks led the way with the Russell 2000 climbing 2.1%, while the S&P 500 advanced 0.7% with all ten sectors posting gains. Prior to the open, the European Central Bank announced several easing measures after the past few months were filled with speculation surrounding potential stimulus from the ECB. The central bank lowered all three of its interest rates (main refinancing rate to 0.15% from 0.25%, marginal lending facility rate to 0.40% from 0.75%, and deposit facility rate to -0.10% from 0.00%), announced the deployment of a targeted long term refinancing operation [LTRO], and said preparations for purchases of asset-backed securities have begun. In addition, the ECB announced it will stop sterilizing purchases under its Securities Market Program [SMP]. One of the factors that forced the action was the continued strength of the euro, which has been stubbornly holding just below its best level since late 2011. The announcement knocked the single currency down...for about three hours. The euro/dollar pair slumped from 1.3600 to 1.3500 following the announcement, but rallied all the way to 1.3655 by the end of the New York session. Conversely, the Dollar Index (80.39, -0.28), which was boosted initially, slumped to lows by the close.