The Week In Review

5/4-5/8/15

The stock market enjoyed a broad-based surge on Friday, which helped the S&P 500 (+1.4%) erase its weekly loss. As a result, the benchmark index added 0.4% for the week.

Equity indices registered the bulk of their gains at the open thanks to a pair of factors that underpinned the sharp spike before the first trade was made in the cash market. First, the UK general election proved surprising as conservatives expanded their presence in the parliament and won 331 of 650 seats. Meanwhile, Ed Miliband (Labour), Nick Clegg (Liberal Democrats), and Nigel Farage (UKIP) resigned from leading their respective parties. Although the results were surprising, markets cheered the preservation of status quo with UK's FTSE surging 2.3%.

Index futures held modest gains following the election results and they extended their gains once the U.S. Nonfarm Payrolls report for April beat expectations (223K; Briefing.com consensus 218K); however, it is worth noting that the March reading was revised down to 85K from 126K and hourly earnings growth remained weak (+0.1%; consensus +0.2%).

The report sparked a fire under equities and Treasuries as lackadaisical wage growth is likely to be used as an argument in favor of the Federal Reserve maintaining its current policy stance for longer. Treasuries soared in reaction to the report, but they retreated from their highs during the afternoon. Still, the 10-yr note ended in the green with its yield down four basis points at 2.14%. The benchmark yield narrowed its weekly increase to two-basis points and ended the week beneath its 200-day moving average (2.19%).

All ten sectors finished the day in positive territory and only three groups posted gains slimmer than 1.0%. Materials (+1.6%) and health care (+1.6%) jockeyed for the lead throughout the session, but the energy sector (+1.6%) overtook them both as part of a late rally. On a related note, crude oil rose 0.7% to $59.42/bbl.

Moving on, the health care sector received a boost from biotechnology with iShares Nasdaq Biotechnology ETF (IBB 351.93, +7.82) spiking 2.3%, and above its 50-day moving average, which had been an area of focus during the past two weeks.

Interestingly, today's broad advance masked the underperformance among a couple other high-beta areas like chipmakers and transport stocks.

The PHLX Semiconductor Index gained 1.0%, but spent the day behind the broader market as NVIDIA (NVDA 20.81, -1.68) weighed. Shares of NVDA fell 7.5% after the company reported in-line results and guided lower. That being said, the broader technology sector (+1.4%) ended a step ahead of the broader market with large cap names like Apple (AAPL 127.52, +2.26), Google (GOOGL 548.95, +6.91), and Microsoft (MSFT 47.75, +1.05) picking up the slack. Microsoft was a standout, climbing 2.3% after Reuters reported the company is no longer looking to acquire Salesforce.com (CRM 72.40, -2.12).

Elsewhere, the industrial sector (+1.2%) settled just behind the broader market even as transport stocks underperformed with the Dow Jones Transportation Average advancing 0.6%. Five components of the bellwether complex registered losses with Landstar System (LSTR 63.18, -0.86) sliding 1.3%.

Today's participation was below recent averages as 759 million shares changed hands at the NYSE floor.

Economic data included Nonfarm Payrolls and Wholesale Inventories:

Nonfarm payrolls added 223,000 new jobs in April, up from a downwardly revised 85,000 (from 126,000) in March while the Briefing.com consensus expected an increase of 218,000 

Private payrolls increased by 213,000 jobs in April after adding a downwardly revised 94,000 (from 129,000) in March while the consensus expected an increase of 215,000

The average hourly wage increased 0.1% in April after increasing a downwardly revised 0.2% in March 

The average workweek remained at 34.5 hours for a second consecutive month

The combination of the increase in payrolls and wages along with constant hours pushed aggregate earnings levels up 0.3% in April. Earnings were flat in March

The unemployment rate fell to 5.4% in April from 5.5% in March, which met consensus expectations

Wholesale inventories increased 0.1% in March after increasing a downwardly revised 0.2% (from 0.3%) in February while the Briefing.com consensus expected an increase of 0.3% 

The BEA assumed that wholesale inventories increased 0.6% in the advance Q1 2015 GDP report. The downside miss in March combined with the revisions to February will result in a downward revision to first quarter GDP when the second estimate is released at the end of the month

There is no economic data on Monday's schedule.

Nasdaq Composite +5.4% YTD
S&P 500 +2.7% YTD
Russell 2000 +2.3% YTD
Dow Jones Industrial Average +2.0% YTD

Week in Review: Stocks Roundtrip

The stock market kicked off the trading week on an upbeat, albeit quiet, note. The Dow and S&P 500 gained 0.3% apiece while the Nasdaq Composite (+0.2%) slipped behind the broader market during afternoon action. "Quiet" was the general theme on Monday as most global equity markets also posted gains while Japan's Nikkei and UK's FTSE were closed for holidays. Seven of ten sectors finished in the green with financials (+1.0%) and utilities (+0.7%) ending in the lead. The countercyclical utilities sector lost the lead during the final hour while financials crept higher throughout the day, also overtaking the health care sector (+0.6%) during afternoon action.

Equity indices ended Tuesday on a sharply lower note following a daylong retreat that was paced by the Nasdaq Composite (-1.6%). For its part, the S&P 500 lost 1.2% with all ten sectors ending in the red. The Tuesday selloff followed an overnight session that featured a 4.1% drop in China's Shanghai Composite after some equity brokers increased their margin requirements, which led to forced selling. Furthermore, markets across Europe also struggled with Germany's DAX diving 2.5% amid spiking yields. To that point, Germany's 10-yr bund yield surged 13 basis points to 0.52% after hovering near 0.16% as recently as last week while Italy's 10-yr yield soared 34 basis points to 1.83%. Rising interest rates were not unique to Europe as the U.S. 10-yr note registered its sixth consecutive decline, sending its yield higher by three basis points to 2.17%. The benchmark yield hit its highest level since early March and spent the day near its 200-day moving average, representing the first appearance near that level in more than a year.

The stock market registered its second consecutive decline on Wednesday with the S&P 500 (-0.4%) bouncing off its 100-day moving average (2,070). The key indices began the day with slim gains, but the Dow, Nasdaq, and S&P 500 quickly returned below their 50-day moving averages and continued lower throughout the day. Adding to the pressure were comments from Fed Chair Janet Yellen who reminded investors that equity valuations are "generally quite high" and that raising the fed funds rate is likely to be followed by a spike in Treasury yields. The opening spike notwithstanding, the Wednesday session was largely a repeat of Tuesday's slide; however, the Nasdaq, which underperformed on Tuesday, retreated alongside the broader market on Wednesday. The major indices cut their losses in half during the final hour, but nine sectors settled in the red with the countercyclical telecom services space (-1.2%) ending behind its peers. More notably, the largest sector by weight—technology (-0.8%)—was the second-weakest performer with large cap names fueling the weakness. Shares of Microsoft (MSFT 46.28, -1.32) tumbled 2.8% while the likes of Apple (AAPL 125.01, -0.79), Google (GOOGL 535.08, -7.96), Oracle (ORCL 43.26, -0.66), and Intel (INTC 32.22, -0.42) lost between 0.6% and 1.5%. It is worth noting that unlike Intel, some other chipmakers outperformed with the PHLX Semiconductor Index shedding just 0.1%.

The market snapped its two-day skid with a Thursday advance that lifted the S&P 500 (+0.4%) into the neighborhood of its 50-day moving average (2,089). The benchmark index narrowed its week-to-date loss to 1.0% while the Nasdaq Composite (+0.5%) outperformed, narrowing its weekly loss to 1.2%. Equity indices vacillated near their flat lines during the opening hour and followed their shaky start with a broad-based rally. However, the cash market masked the fact that S&P 500 futures were down more than 15 points overnight. That weakness coincided with selling in the Treasury market, which abated once the benchmark 10-yr yield kissed the 2.30% level. To be fair, the overnight selloff in Treasuries did not take place in a vacuum as Germany's 10-yr bund endured a sharp plunge that briefly sent its yield as high as 0.79%. German bunds were able to retrace the entire move, returning to 0.59% while U.S. Treasuries did that and then some. The 10-yr note rallied throughout the session, dropping its yield six basis points to 2.18% and back below the 200-day moving average (2.19%).