U.S. markets took a breather on Friday as the major indexes closed mixed to finish the week.
The Dow and S&P 500 traded lower for the first time in 7 and 10 sessions, respectively, while the Russell 2000 slipped for the second time in three sessions. Meanwhile, the Nasdaq is riding a 9-session winning streak with micro-caps in a holding pattern heading into the start of 3Q earnings season.
Materials and Financials were the strongest sectors for the week, rising 1.9%. The only sector laggards were Energy and Consumer Staples after giving back 0.6% and 0.3%, respectively.
Global Economy –European markets finished mostly lower as the political drama in Spain continued with the financial and political squeeze on the separatist government in Catalonia tightening. The Belgium20, France’s CAC 40 and the Stoxx Europe 600 fell 0.4% while Germany’s DAX 30 slid 0.1%. UK’s FTSE 100 gained 0.2%
UK Q2 unit labor costs rose 1.6% year-over-year, the slowest pace of increase since Q4 of 2015.
Germany August factory orders jumped 3.6% month-over-month, stronger than expectations of +0.7%.
Asian markets traded higher with China and South Korea still closed on Friday for holidays. Australia’s S&P/ASX 200 jumped 1% while Singapore’s Straits Times index rallied 0.9%. Japan’s Nikkei and Hong Kong’s Hang Seng Index advanced 0.3%.
Japan’s August labor cash earnings rose 0.9% year-over-year, stronger than expectations for an increase of +0.5%.
The Japan August leading index CI rose 1.6 to 106.8, weaker than expectations for a gain of 1.9 to 107.1. The August coincident index rose 1.9 to 117.6, stronger than expectations for a rise of 1.8.
September nonfarm payrolls declined 33,000 while the unemployment rate fell to 4.2%, down from 4.4%. Expectations were for an increase of 120,000 jobs added.
U.S. consumer credit rose $13.1 billion in August versus expectations of $16 billion for the month.
U.S. wholesale sales jumped 1.7% in August with inventories up 0.9%.
Market Sentiment – St. Louis Fed dove James Bullard did not address either current monetary policy or the economic outlook in his prepared remarks.
New York Fed Dudley repeated the gradual rate hike rhetoric that has been a recent theme, despite surprisingly low inflation, which he expects to rebound in the medium-term. He views falling unemployment and dollar, although it has been rebounding of late, and financial conditions as reasons to tighten.
He believes inflation has been held down by fundamental structural issues and hopes for clarity after the hurricane impact, which he says will boost growth over time.
The iShares 20+ Year Treasury Bond ETF (TLT) traded to a low of $123.03 shortly after Friday’s open with lower support at $123.50-$123 holding. A move below the latter opens up risk to $122-$121.75 and the 200-day moving average. This area served as strong support throughout July.
Resistance at $124.50-$124.75 held on the rebound afterwards to $124.10. RSI is still in a downtrend and is pushing July lows. A continued backtest to 30 could be in the works and would signal oversold conditions.
Market Analysis- The iShares Micro-Cap ETF (IWC) has been in a holding pattern for four sessions following the September surge and breakout above $88 and the 50-day moving average. Friday’s high reached $96.50 but failed the recent all-time high of $96.71.
Fresh resistance is at $96.75-$97.50 with a move above the latter likely leading to triple-digits. A close below $96-$95.75 could lead to a continued backtest towards $94.50-$94 to retrace the gap higher.
RSI tapped 90 last week and is signaling overbought conditions at current levels.
The Consumer Staples Select Spiders (XLP) traded to a low of $53.74 with July support at $53.50 still in play on continued weakness. A close below $53.50 would likely lead to a continued backtest towards $52.50-$50. The 52-week low is at $49.98.
Current resistance is at $54 and the 200-day moving average followed by $54.25. The 50-day moving average remains in a downtrend with RSI showing signs of continued weakness to the low 30’s.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average is currently at 70% and has cleared the 69% level from the first of September.
Continued closes above 70% would be bullish for possibly reaching 75%. The area held in April, May and July and could signal a short-term market top, if reached. A move back below 65% would signal upcoming market weakness.
The percentage of S&P 500 stocks trading above the 200-day moving average is currently near 73% with Thursday’s peak reaching nearly 75% and a 6-month peak. The one-year high reached 80%-82% at the beginning of the year. A move below 70% would be a signal for a possible pullback towards 65%.
All the best,