The Week In Review


The Dow (+0.3%), Nasdaq (+0.2%), and S&P 500 (+0.2%) ended the Friday session near their flat lines, allowing the benchmark index to register its seventh consecutive weekly advance. The S&P 500 added 0.4% for the week, while the Russell 2000 (+0.8%) outperformed to extend its weekly gain to 0.7%. Also of note, the tech-heavy Nasdaq outperformed slightly today, but still ended the week in the red (-0.2%).

Prior to the open, the Nonfarm Payrolls report revealed the addition of 321,000 jobs in November while the consensus expected a reading of 230,000. Although the data point came in well ahead of estimates, the stock market struggled for direction before following the financial sector (+1.0%) higher. Outside of financials, only the health care sector (+0.8%) was able to add more than 0.3%. As for the broader market, the S&P 500 notched its high just ahead of noon ET and slipped from that level into the close.

The lack of broad strength following a solid jobs report was a reflection of concerns that the Fed may be inclined to hike the fed funds rate sooner than the market expected. These concerns showed up in the Dollar Index (89.34, +0.64) and the Treasury market with the 10-yr note diving to send the benchmark yield higher by seven basis points to 2.31%. At the front of the curve, the 2-yr yield climbed nine basis points to 0.64%.

Conversely, higher Treasury yields contributed to the strength in the financial sector, which is poised to benefit from improved net interest margins of banks. If rates rise at the short end of the Treasury yield curve that would allow banks to charge higher interest on loans while deposit rates would likely remain close to where they are now. Top-weighted sector members rallied across the board with Dow components JPMorgan Chase (JPM 62.70, +1.32) and Goldman Sachs (GS 195.45, +3.50) spiking 2.2% and 1.8%, respectively, while the sector ended the week ahead of the remaining nine groups (+1.8%).

Meanwhile, the remaining cyclical sectors settled closer to their flat lines. Consumer discretionary (+0.3%) and industrials (+0.2%) registered modest gains while energy (-1.2%), materials (-0.1%), and technology (-0.2%) ended in the red.

The industrial sector was underpinned by defense and transport stocks. The PHLX Defense Index rose 0.6% while the Dow Jones Transportation Average gained 0.4%.

Elsewhere, the discretionary sector received support from restaurants, homebuilders, and media names while retailers underperformed after American Eagle Outfitters (AEO 11.91, -1.90), Big Lots (BIG 40.00, -7.95), and Five Below (FIVE 37.61, -5.24) disappointed with their results or guidance. Gap (GPS 40.74, +0.18) bucked the trend, climbing 0.4%, after reporting better than expected same store sales for November, but the SPDR S&P Retail ETF (XRT 92.43, -0.30) shed 0.3%.

Also of note, the top-weighted technology sector spun its wheels throughout the day as large cap components weighed while chipmakers rallied after Freescale Semiconductor (FSL 24.79, +1.36) was upgraded to 'Buy' from 'Hold' at Evercore ISI. Shares of FSL jumped 5.8% while the PHLX Semiconductor Index settled higher by 1.0%.

Chipmakers helped the Nasdaq Composite finish a little ahead of the broader market while biotechnology also chipped in with the iShares Nasdaq Biotechnology ETF (IBB 308.81, +2.61) climbing 0.9%. In turn, the strength helped the health care sector (+0.8%) register a solid gain.

On the downside, the energy sector (-1.2%) was pressured by a 1.8% decline in crude oil ($66.75/bbl) while the rate-sensitive utilities sector (-0.8%) lagged as Treasury yields climbed.

Today's participation was a bit below average with 738 million shares changing hands at the NYSE floor.

Economic data included nonfarm payrolls, trade balance, factory orders, and consumer credit:

Nonfarm payrolls increased by 321,000 in November, up from an upwardly revised 243,000 (from 214,000), while the consensus expected nonfarm payrolls to add 230,000 new jobs
That was the biggest increase in payrolls since 360,000 jobs were added in January 2012
Private payrolls increased by 314,000 in November after adding an upwardly revised 236,000 (from 209,000) in October. The consensus expected 228,000 new private jobs
Obviously, a three-handle jobs gain is impressive, which tells us that there was still a considerable amount of people unemployed who were looking for jobs
However, those who already had jobs were able to demand a 0.4% increase in average hourly earnings, which suggests that the number of available qualified workers is diminishing, thus forcing employers to pay their workers more money to keep them at their current job
Gains in hourly earnings and the average workweek led to a 0.9% increase in aggregate wages, which was the largest increase since 2006
The unemployment rate held at 5.8%, as expected
The U.S. trade deficit narrowed slightly in October, falling from an upwardly revised $43.60 billion (from $43.00 billion) in September to $43.40 billion while the consensus expected a decline to $42.00 billion
The goods deficit was virtually unchanged at $62.70 billion while the services surplus increased to $19.20 billion from $19.10 billion
Factory orders declined 0.7% in October after declining an upwardly revised 0.5% (from -0.6%) while the consensus expected an increase of 0.3%
The large downside surprise resulted from weaker oil prices, which caused a 6.5% decline in petroleum refinery orders. This led to a 1.5% decline in nondurable goods orders after those orders declined only 0.2% in September
The Consumer Credit report for October showed an increase of $13.20 billion, which was lower than the consensus estimate of $16.50 billion
Monday's session will be free of economic data.

Nasdaq Composite +14.5% YTD
S&P 500 +12.3% YTD
Dow Jones Industrial Average +8.3% YTD
Russell 2000 +1.5% YTD
Week in Review: S&P 500 Posts Seventh Weekly Gain

The major averages began December on a lower note with relative weakness among cyclical sectors keeping the market under pressure throughout the Monday session. The Nasdaq Composite (-1.3%) and Russell 2000 (-1.6%) paced the slide while the S&P 500 settled lower by 0.7% with eight sectors ending in the red. Equities faced selling pressure from the opening bell after the overnight session reminded investors about persistent growth concerns around the globe. In Asia, China's HSBC Manufacturing PMI fell to an eight-month low (50.3; expected 50.5) while Japan's debt rating was lowered to A1 from Aa3 at Moody's. Making matters worse, Germany's Manufacturing PMI slid into contraction (49.5; expected 50.0) while the eurozone Manufacturing PMI narrowly avoided the same fate (50.1; expected 50.4). Accordingly, the concerns about major economies kept cyclical sectors under pressure with five of six growth-sensitive groups ending behind the broader market.

Equities enjoyed a broad rebound on Tuesday after Monday's retreat. The S&P 500 settled higher by 0.6% while the Russell 2000 (+1.2%) displayed relative strength. The benchmark index spent the day in a steady advance with M&A news acting as a supportive factor. In the technology sector (+0.3%), Cypress Semiconductor (CY) agreed to a $4 billion merger of equals with Spansion (CODE) while health care component (+1.1%) Avanir Pharmaceuticals (AVNR) agreed to be acquired by Otsuka Pharmaceuticals for $3.5 billion in cash. Also of note, insurer Aviva (AV) announced its acquisition of Friends Life Group.

The market ended the midweek session on an upbeat note with the Russell 2000 (+1.0%) pacing the advance for the second day in a row. Meanwhile, the S&P 500 posted a more modest gain of 0.4% with seven sectors ending in the green. Cyclical sectors were responsible for the bulk of the advance as all six growth-sensitive groups ended in the green while health care (+0.2%) was the lone gainer on the countercyclical side.

The stock market ended the Thursday session on a modestly lower note ahead of Friday's Nonfarm Payrolls report for November. The S&P 500 shed 0.1% while the Russell 2000 (-0.5%) underperformed. Thursday served as a perfect reminder for how dependent global equity markets have become on central bank stimulus. The first reminder occurred during the Asian session with China's Shanghai Composite soaring 4.3% amid expectations the People's Bank of China will introduce additional stimulus measures. While the advance was impressive, it pales in comparison with an 18.3% surge in the index since November 20. Meanwhile, the second reminder manifested itself through volatility in European and U.S. markets in reaction to the European Central Bank's latest policy statement and subsequent press reports. ECB President Mario Draghi did not call for the start of a sovereign QE program, which had been expected by some. However, a Bloomberg report indicating the ECB will prepare a broad-based QE package for the January meeting helped fuel a rebound.