The Week In Review

8/31-9/4/15

The stock market finished the first week of September on a defensive note after a daylong retreat pressured the S&P 500 (-1.5%) back to Wednesday's opening levels. The benchmark index lost 3.4% for the week while the Nasdaq Composite (-1.1%) outperformed, ending the week lower by 3.0%.

Equity indices slumped out of the gate, responding to the overnight weakness in the futures market. To that point, index futures began marching lower during the Asian session, setting pre-market lows after this morning's release of the Nonfarm Payrolls report for August. At first glance, the report appeared mediocre as the headline number came in below expectations (173,000; Briefing.com consensus 217,000); however, better than expected hourly earnings growth (+0.3%; consensus +0.2%) and a drop in the Unemployment Rate (to 5.1% from 5.3%) meant that the report is unlikely to deter the Federal Reserve from raising the fed funds rate as early as this month.

Treasuries fell from their overnight highs immediately after the report, but the 10-yr note found support on its flat line. The benchmark instrument traded little changed as the equity market opened, but returned to its overnight high as equities retreated throughout the day. Thanks to the intraday strength in Treasuries, the 10-yr yield fell four basis points to 2.12%.

Interestingly, the Dollar Index (96.27, -0.13) only saw a brief spike back to its flat line after the jobs report before setting a fresh session low. The greenback surrendered about 0.2% to the euro (1.1145) and gave up 0.9% against the yen (119.05).

In some ways, today's retreat was not that surprising since the U.S. market will be closed for Labor Day on Monday while potentially-volatile trading will resume in China after a two-day holiday. As a result, today's action at the NYSE floor generated a trading volume of 828 million, which was a bit below totals observed earlier this week.

Today's daylong retreat induced some demand for volatility protection, evidenced by the CBOE Volatility Index (VIX 27.87, +2.26), which returned near its closing level from August.

All ten sectors finished the day in negative territory with financials (-1.9%) and materials (-2.0%) ending at the bottom of the leaderboard. Elsewhere, the health care sector (-1.3%) finished a bit ahead of the broader market thanks to relative strength in biotechnology. The iShares Nasdaq Biotechnology ETF (IBB 337.79, -0.84) shed 0.3%, which helped the Nasdaq settle ahead of the S&P 500. Meanwhile, large cap Nasdaq components traded in-line with the broader market.

Elsewhere, the energy sector surrendered 1.7% on Friday, widening its weekly decline to 3.1%. On a related note, crude oil slid 0.7% to $45.97/bbl, ending the week higher by 1.7%.

Taking another look at the August Nonfarm Payrolls report:

Nonfarm payrolls increased by 173,000 (Briefing.com consensus 217,000)

July nonfarm payrolls revised to 245,000 from 215,000

June nonfarm payrolls revised to 245,000 from 231,000

Private sector payrolls increased by 140,000 (Briefing.com consensus 210,000)

July private sector payrolls revised to 224,000 from 210,000

June private sector payrolls revised to 218,000 from 227,000

Unemployment rate was 5.1% (Briefing.com consensus 5.2%) versus 5.3% in July

The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was 10.3% versus 10.4% in July

Persons unemployed for 27 weeks or more accounted for 27.7% of the unemployed versus 26.9% in July

Average hourly earnings increased 0.3% (Briefing.com consensus 0.2%) after a 0.2% increase in July

Aggregate earnings were up 0.7% versus a downwardly revised 0.4% increase in July.

Over the last 12 months, average hourly earnings have risen 2.2% versus 2.1% in July

The average workweek was 34.6 hours (Briefing.com consensus 34.6) versus a downwardly revised 34.5 hours in July

Bond and equity markets will be closed on Monday in observance on Labor Day.

Nasdaq Composite -1.1% YTD

S&P 500 -6.7% YTD

Russell 2000 -5.6% YTD

Dow Jones Industrial Average -9.7% YTD

Week in Review: Volatility Persists

The trading week began on a defensive note with all eyes on crude oil after the energy component soared more than 10.0% on Friday. Specifically, crude prices were down 3.6% in early trading to $43.60 per barrel. They would settle the day up 8.8% at $49.20 per barrel, representing a huge 13.0% swing from low to settlement price. The reversal in oil prices triggered a reversal in the S&P 500 energy sector, which was down 2.6% shortly after the start of trading. It would end the day up 1.1%, which left it as the best-performing sector in the S&P 500, as well as the only sector to finish the day in positive territory. For its part, the S&P 500 surrendered 0.8%.

On Tuesday, the market began September on a defensive note with a broad-based retreat that sent the S&P 500 lower by 3.0%. The benchmark index widened its Q3 loss to 7.0% while the Dow (-2.8%) and Nasdaq Composite (-2.9%) spent the day just ahead of the S&P 500. Equity indices slumped at the start, responding to the overnight weakness in the futures market. To that point, index futures began retreating shortly after Monday's closing bell and extended their losses during the Asian session with disappointing manufacturing data from China contributing to the cautious posture. Specifically, the official Manufacturing PMI slipped to 49.7 from 50.0 while the Caixin Manufacturing PMI ticked up to 47.3 from 47.2, but both readings came in below 50.0, which signifies contraction. The Shanghai Composite began the month with a 1.2% slide while the disappointing data from China reminded global investors about the persistent growth concerns.

The stock market snapped its two-day skid on Wednesday with the Nasdaq Composite leading the advance. The tech-heavy index climbed 2.5% while the Dow (+1.8%) and S&P 500 (+1.8%) registered slimmer gains. Although the market ended the midweek session on a higher note, the advance did not feature the characteristics of a sharp bounce. Instead, stocks traded in sideways fashion before spiking to new highs during the final 30 minutes of the day. Nine sectors posted gains while the utilities space (UNCH) underperformed amid higher Treasury yields. The 10-yr note slumped in the morning, briefly retraced its loss during the session, and fell back to lows into the close. As a result, the 10-yr yield increased three basis points to 2.19%.

Thursday ended on a cautious note ahead of Friday's release of the Nonfarm Payrolls report for August (Briefing.com consensus 217,000). The S&P 500 added 0.1% after being up as much as 1.3% while the Nasdaq Composite (-0.4%) underperformed throughout the session. Equities climbed steadily through the first hour of action as global investors rushed into risk assets after European Central Bank President Mario Draghi indicated the ECB's quantitative easing program may be extended. To that point, the ECB made no changes to its policy course, but the central bank will now be allowed to buy up to 33.0% of any particular issue, up from the previous limit of 25.0%. On a related note, the ECB lowered its 2015 GDP forecast for the eurozone to 1.4% from 1.5%. The news from Europe pressured the euro, sending the single currency lower by 0.8% against the dollar to 1.1125. The euro remained in the neighborhood of its low throughout the day while stocks reached their highs during the first 90 minutes of the day before pulling back.