The Week In Review


The S&P 500 declined as much as 1.0% on Friday, as disappointing growth in U.S. jobs contributed to global growth concerns and profit-taking interest. However, renewed buying interest in the afternoon helped the benchmark index trim its loss to 0.2% and close at session highs.

The Dow Jones Industrial Average (-0.1%), the Nasdaq Composite (-0.2%), and the Russell 2000 (-0.1%) also finished near session highs after being down as much as 0.9%, 1.2%, and 0.9%, respectively.

The S&P 500 energy (-2.0%) and consumer discretionary (-0.7%) sectors underperformed the broader market. Conversely, the utilities (+0.4%), materials (+0.2%), real estate (+0.1%), and consumer staples (+0.1%) sectors outperformed.

It had been broad-based retreat for most of the day with all 11 S&P 500 sectors trading lower following a mixed February Employment Situation Report. The ability to hold above morning lows, though, encouraged some buying interest, and the acceleration of the rebound likely added a short-covering element into the picture.

February nonfarm payroll growth was surprisingly weak, coming in at just 20,000 ( consensus 173,000). NEC Director Larry Kudlow, among many others, believed the payroll figure was an outlier.

The positive spin is that average hourly earnings grew 0.4%, which pushed up the year-over-year wage growth rate to 3.4% -- the highest since April 2009, and unemployment fell to 3.8% from 4.0%. Still, the big miss on payrolls stoked concerns that it was a sign of developing softness in the labor market.

At the same time, weak trade data out of China, where February exports declined 20.7% year-over-year, and some pessimism about the prospects for a U.S.-China trade deal helped contribute to early-morning weakness.

In earnings news, Costco (COST 227.82, +11.03, +5.1%) and Big Lots (BIG 36.18, +4.34, +13.6%) sported notable gains after both beat earnings estimates. National Beverage (FIZZ 58.27, -10.00), meanwhile, dropped 14.7% after it missed top and bottom-line estimates.

U.S. Treasuries edged higher, pushing yields lower. The 2-yr yield declined two basis points to 2.44%, and the 10-yr yield declined one basis point to 2.63%. The U.S. Dollar Index declined 0.3% to 97.36. WTI crude lost 0.8% to $56.14/bbl.

Reviewing Friday's economic data, which included the February Employment Situation Report and the Housing Starts and Building Permits Report for January:

  • The February Employment Situation Report muddied what had been a pretty clear labor market picture. The headline that will jump out at everyone is that nonfarm payrolls increased by only 20,000 in February, well below expectations and far off recent readings running above 200,000. Average hourly earnings, meanwhile, increased 0.4%, which left the year-over-year wage figure up 3.4%. That's good news, as it is a positive underpinning for consumer spending.
    • The key takeaway from the report is that the weak payrolls figure will drive thoughts of either there being a shortage of skilled labor that could drive up wages or that it is a sign of a softening job market. In other words, the key takeaway is that it is going to create uncertainty that is going to hang over the market.
  • Housing starts increased 18.6% month-over-month in January to a seasonally adjusted annual rate of 1.230 million units ( consensus 1.180 million) and permits rose 1.4% month-over-month to 1.345 million ( consensus 1.280 million).
    • The key takeaway from the report, however, is that starts were down 7.8% year-over-year and permits were down 1.5% year-over-year. Accordingly, the strong January figures belie an otherwise torpid new residential construction market.

Looking ahead, investors will receive Retail Sales for January and Business Inventories for December on Monday.

  • Russell 2000 +12.9% YTD
  • Nasdaq Composite +11.7% YTD
  • S&P 500 +9.4% YTD
  • Dow Jones Industrial Average +9.1% YTD

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