US equity markets posted a mixed session on Friday but still managed to post a second consecutive week of gains. The Nasdaq ticked incrementally higher with a gain of 0.16% on expanding volume of 9.88% on the day. The S&P 500 (-0.19%) and Dow Industrials (-0.35%) both lost modest ground as volume on the NYSE moved higher by 5.66%. Advancing issues and losing issues fought to a draw on the NYSE and Nasdaq while markets remain in a confirmed uptrend.
Friday’s economic data was something akin to confetti being shot out of a cannon for bulls. The Real GDP – Q/Q change SAAR was expected to be 0.4% with a range of .02% – 0.8%. It was actually 1.0%. The GDP Price Index Q/Q change SAAR was 0.9% versus expectations calling for 0.8%. International Trade in Goods was in line with expectations at $ -62.2 B. Personal Income and Outlays M/M change was 0.5% and Consumer Spending was 0.5% – both above consensus expectations
Now with earnings season largely in the rearview mirror, the street’s attention will shift dramatically to economic data. This week there will be plenty to digest.
On Tuesday we will be treated to Motor Vehicle Sales, PMI Manufacturing and Construction Spending. Wednesday will be highlighted by the ADP Employment Report, EIA Petroleum Status Report and the Fed’s Beige Book. Thursday; Weekly Jobless Claims, Productivity and Costs, Factory orders and the ISM Non-Mfg. Index. Finally, on Friday, we receive the all important payrolls report. It would be difficult to overemphasize the importance of Friday’s payrolls numbers for the month of February – both for investors and for those tasked with monetary policy.
Friday’s consensus for nonfarm M/M ranges from +168k to + 217k. The homogenized number is +190k. The unemployment rate is expected to remain 4.9%. Private payrolls are expected to register a gain of 183k. Average hourly Earnings are expected to increase by 0.2% and the Average Workweek should be 34.6 hours.
US equity markets are treading a very fine line at the moment. Investors are looking for data that speaks to expansion and growth while simultaneously hoping for that growth to be tepid enough to keep interest rates from rising – at least until June.
In effect, investors want their cake but also want to eat it too.
If, for example, Friday’s monthly employment gains come in well above the consensus outlined above, markets will almost certainly pullback because expectations for the next rate rise will be considered more immediate. If the payroll data is significantly weaker than the consensus, markets will likely pullback for fear that the lone industrialized economy in the world that is expanding is finally succumbing to a global economy mired in weak demand, aggressive monetary accommodation and flagging growth. In order for markets to move higher or at least retain recent gains, Friday’s data needs to be just right.
S&P 500 has moved 6.5% higher from the lows established on February 11th. Friday’s payroll data is either the pathway lower or the gateway higher.