S&P 500, Dow and Nasdaq Lose Ground

Weak economic data, lack of productivity gains and earnings hamper the market. Friday’s payrolls data left the market and investors disappointed. April’s employment gains came in at 160k versus expectations calling for a gain of 200k. The official Unemployment Rate stands at 5%.

Though the employment data for April was light, it wasn’t a shock given the consistent theme of below consensus economic data we have been receiving in recent weeks. It was the weakest monthly employment number in seven months. However, the report wasn’t all bad. The Labor Force Participation Rate continued to hold relatively steady at 62.9, only fractionally lower than March’s 63. Average Hourly Earnings (0.3%) and Average Work Week (34.5 hrs.) were in line.

The fact is that weak economic expansion coupled with the stall in productivity gains may well lead to further weakness in employment gains in coming months.

Despite the misdirection provided by the employment data, markets did firm and close with gains on the session Friday. The S&P 500 (+0.32%), Dow Industrials (+0.45%) and Nasdaq (+0.40%) rallied into the closing bell though volume was mixed, rising on the Nasdaq (+1.98%) and slipping on the NYSE (-5.3%). Weak results and poor price performance by the likes of TSLA and AAPL have weighed heavily on the Nasdaq and broader market.

The strength in equities on Friday may speak to the increased likelihood that a move by the Fed in June, given the weak economic data and Friday’s employment report miss, is increasingly less probable. Additionally, support for no action on rates by the Fed in June comes from concern over the Brexit narrative and the potential for global market volatility.

I remain in the camp that believes the Fed may yet prove investors wrong and raise in June.

It was encouraging to see the market gain ground on Friday but it was still a losing week. Though last week we did not see the type of pullback I was expecting, I still think it is in the cards for this week. It may be the result of the Greek debt talks, it may be earnings and/or it may come from economic data. Irrespective of where it comes from, I suspect the weak price action we have seen over the previous three weeks will ultimately lead to a move lower for US equities.

flickr photo: Sean MacEntee