9/29-10/3/14

The major averages finished a defensive week on an upbeat note. The S&P 500

gained 1.1% with nine sectors ending in the green. The rally helped the

benchmark index narrow this week’s decline to 0.8% after being down near

3.0% at its lowest point on Thursday. Equities received a morning boost after the Nonfarm Payrolls report for September sailed past expectations. According to the Bureau of Labor

Statistics, payrolls grew by 248,000, which was well ahead of the

Briefing.com consensus estimate (210,000). The unemployment rate fell to

5.9% from 6.1%, but that resulted from a drop in the labor force participation rate.

The strong report underpinned equities and sent the Dollar Index (86.66,

+1.06) to a fresh four-year high. The greenback strength weighed on

commodities, resulting in a 1.4% drop in crude oil ($89.76/bbl) and a 1.8%

decline in gold futures ($1192.90/ozt). The losses in the commodity space

pressured the two commodity-related sectors, while the remaining cyclical

groups posted gains of 0.8% or more.

Meanwhile, the energy sector (unch) underperformed throughout the session

and was down near 1.0% during morning action. The growth-sensitive sector

was able to return to its flat line, but could not avoid registering a 3.8%

decline for the week.

Similarly, the materials sector (+0.3%) ended the week in-line with energy

amid pressure from miners and steelmakers. The Market Vectors Gold Miners

ETF (GDX 20.63, -0.99) fell 4.6%, while the Market Vectors Steel ETF (SLX

42.83, -0.84) tumbled 1.9% with Cliffs Natural Resources (CLF 8.32, -1.68)

pacing the slide. The steel company plunged 16.8% following a Nomura

downgrade to ‘Reduce’ from ‘Buy.’

Elsewhere among cyclical groups, consumer discretionary (+1.3%) and

financials (+1.5%) displayed strength throughout the session, while the

technology sector (+0.8%) ended a bit behind the market. The top-weighted

sector component-Apple (AAPL 99.62, -0.28)-acted as a drag, while chipmakers

could not keep up with the market either. The PHLX Semiconductor Index added

0.6%, but registered a 3.1% loss for the week.

The underperformance of chipmakers did not reflect the strength in other

high-beta areas. The Dow Jones Transportation Average surged 2.1% back to

unchanged for the week, while biotech stocks sent the iShares Nasdaq

Biotechnology ETF (IBB 275.33, +6.74) higher by 2.5%. Conversely, the health

care sector (+2.0%) spent the entire session in the lead. Shares of Mylan

Labs (MYL 50.23, +3.73) contributed to the strength after the company raised

its guidance.

Treasuries slumped following the jobs data, but returned to their early

morning levels by the close. The 10-yr note shed four ticks, adding one

basis point to its yield (2.44%), while the long bond posted a modest gain,

lowering its yield by one basis point to 3.13%.

Today’s participation was ahead of average with more than 796 million shares

changing hands at the NYSE.

Economic data included Nonfarm Payrolls, Trade Balance, and ISM Services:

Nonfarm payrolls added 248,000 jobs in September following an upwardly

revised 180,000 (from 142,000) gain in August, while the Briefing.com

consensus expected an increase of 210,000

Stripping out government jobs, private payrolls added 236,000 jobs in

September (consensus 205,000) after adding an upwardly revised 175,000 (from

134,000) in August

The hourly workweek ticked up to 34.6 hours from 34.5 hours and hourly

earnings growth was flat

While the unemployment rate fell to 5.9% from 6.1%, which easily beat

consensus expectations of 6.1%, much of the gain came from the 97,000 person

decline in the labor force. Had the participation rate remained at August

levels, the unemployment rate would have remained at 6.1%

The U.S. trade deficit fell to $40.10 billion in August from a downwardly

revised $40.30 billion (from $40.50 billion) in July, while the Briefing.com

consensus expected an increase to $40.90 billion

The goods deficit increased to $59.90 billion in August from $59.80 billion

in July and the services surplus increased to $19.80 billion from $19.50

billion

The ISM Non-manufacturing Index fell to 58.6 in September from 59.6 in

August, while the Briefing.com consensus expected a drop to 58.9

Even though the index declined in September, the trends show robust economic

growth with both business activities/production (62.9 from 65.0) and new

orders (61.0 from 63.8) remaining above 60

There is no economic data on Monday’s schedule.

Nasdaq Composite +7.2% YTD

S&P 500 +6.5% YTD

Dow Jones Industrial Average +2.6% YTD

Russell 2000 -5.0% YTD

Week in Review: Stocks Slide as Q3 Ends

The stock market began the new week on a cautious note. The S&P 500 lost

0.3%, but managed to erase more than half of its opening decline. Thanks to

the rebound, the benchmark index reclaimed its 50-day moving average

(1976.78) after slipping below that level in the morning. Equities slumped

at the open amid a couple global developments that dampened the overall risk

appetite. Continued student protests in Hong Kong and a potential response

from China weighed on the Hang Seng index (-1.9%), while other regional

indices held up relatively well with Japan’s Nikkei (+0.5%) and the Shanghai

Composite (+0.4%) posting gains. Meanwhile in Europe, participants showed

concerns about the Catalan independence referendum scheduled to take place

on November 9. However, a twist was introduced to the story during the

afternoon when the Spanish Constitutional Court announced it will block the

independence vote.

On Tuesday, the market finished the third quarter on a defensive note with

small caps leading the retreat. The S&P 500 shed 0.3% to narrow its Q3 gain

to 0.6%, while the Russell 2000 (-1.5%) widened its quarterly loss to 7.9%.

The retreat represented the second consecutive decline for the benchmark

index, which registered a September loss of 1.6%. The S&P 500 displayed

modest strength in the early going with help from influential sectors like

technology (+0.2%), financials (-0.2%), and industrials (-0.1%), but slid

from highs amid significant weakness in the two commodity-related sectors.

Most notably, the energy space (-1.2%) widened its Q3 loss to 9.2% and was

pressured by a 3.6% decline in crude oil, which fell to $91.16/bbl,

registering a 13.6% loss for the quarter.