U.S. markets settled mixed on Friday as a somewhat lackluster monthly jobs report solidified bets that the Federal Reserve will cut rates again when it meets later this month.
The mixed and lackluster session closed out another strong week for the market with the major indexes recovering much of the losses from August following the 2nd-straight week of gains.
The Dow added 0.3% to extend its winning streak to 3-straight sessions following the midday run to 26,860.
Near-term and lower resistance at 26,800-27,000 was cleared but held by a few points with a move above the latter getting 27,250-27,500 and the all-time high at 27,398 back in focus.
The S&P 500 was also up for the 3rd-straight session after advancing 0.1% while testing an intraday peak of 2,985 for the 2nd-straight day. Near-term and lower resistance at 3,000-3,025 easily held with July’s all-time high at 3,027.
The Nasdaq dipped 0.2% despite tapping an intraday high of 8,134 while holding 8,100 and its the 50-day moving average into the close.
Lower resistance at 8,150-8,200 was challenged but held with upside potential towards 8,250-8,300 and the all-time high at 8,339 on a move above the latter.
The Russell 2000 slipped 0.1% after trading within a 13-point range while reaching a midday peak 1,517 and holding the 1,500 level afterwards.
Lower resistance at 1,515-1,530 and the 200-day moving average was cleared but held for the 2nd-straight session with a close above the latter and the 50-day moving average getting 1,545-1,560 in play.
For the week, the S&P 500 and the Nasdaq rose 1.8%. The Dow rallied 1.5% and the Russell 2000 gained 0.6%.
Energy and Materials led sector strength after climbing 0.5% and 0.4%, respectively.
Utilities and Communication Services were lower by 0.4% and 0.2% to lead sector weakness.
The best performing sectors for the week were Energy (2.7%) followed by Technology (2.5%) and Communication Services (2.4%). There were no sector laggards.
Earnings – No update this week.
Nonfarm payrolls increased 130,000 in August, versus expectations for a print of 150,000. July was revised to a gain of 159,000 and June at to 178,000 for a net -20,000 two-month revision with the 3-month average at 156,000.
The unemployment rate was steady at 3.7% for a third straight month, matching forecasts.
Average hourly earnings ticked up to 0.4% from 0.3%, but slowed slightly to 3.23% year-over-year from 3.28%. The workweek edged up to 34.4 after slipping to 34.3 in July.
The labor force surged another 571,000 following July’s 370,000 gain, with household employment up 590,000 versus the prior 283,000 increase.
The labor force participation rate rose to 63.2% from 63%.
Private payrolls increased 96,000 with the goods producing sector adding 12,000. Manufacturing employment inched up 3,000 and construction employment climbed 14,000.
Private service sector jobs were up 84,000 and government added 34,000 jobs.
Quarterly Services Survey showed a 5.3% Q2 year-over-year gain in the aggregate selected services measure.
For the larger components, there was a 7% year-over-year jump in the finance and insurance component, and a 5.1% rise for the healthcare and social assistance component.
Baker-Hughes reported the U.S. rig count was down 6 rigs to 898, with oil rigs declining 4 to 738, gas rigs off 2 to 160, and miscellaneous rigs unchanged at 0.
The U.S. Rig Count is down 150 rigs from last year’s count of 1,048, with oil rigs down 122, gas rigs lower by 26, and miscellaneous rigs declining 2 to 0. The U.S. Offshore Rig Count was unchanged at 28 and is up 9 rigs year-over-year.
Market Sentiment – Fed Chair Jerome Powell said the U.S. economy has continued to perform well, reiterating once again it’s in a good place.
The outlook is a favorable one, he added but also said there are significant risks, including slowing in global growth, trade policy uncertainties that are weighing on business decisions, and persistently low inflation. He sees growth around 2%-2.5%, driven by the consumer.
Powell said the labor market remains strong, while inflation is moving back up.
He repeated the Fed will continue to act as appropriate to maintain the expansion and that the Fed is not forecasting or expecting a U.S. recession, nor a global downturn, and that the U.S. consumer is in good shape.
There are these risks, however, which he said the Fed is monitoring very carefully and is conducting policy in a way to address the noted risks.
Powell also repeated that the Fed is very committed to its symmetric 2% inflation goal in order to keep inflation from moving lower and becoming embedded in expectations.
He added a number of factors have contributed to a low neutral rate, including demand for safe assets with an aging population. He also said given low inflation, interest rates will remain low but that it is leaving very little room to cut rates further, which mandated implementing other tools.
In his closing comments to questions, Powell said political factors play absolutely no role in decision making and the Fed is not actively considering digital currencies.
The iShares 20+ Year Treasury Bond ETF (TLT) rebounded from the prior session pullback to close higher for the 3rd time in 4 sessions after reaching an intraday peak of $146.03.
Near-term and lower resistance at $146-$146.50 was cleared but held. A move above $147.50 would be a renewed bullish signal with the all-time high at $148.90.
Current support is at $145-$144.50. A close below the latter would be a slightly bearish development with risk towards $142.50-$142.
RSI is trying to hold support at 60 with a move below the latter opening up risk towards 55-50 and the latter representing mid-July lows. Resistance is at 65-70.
Market Analysis – The Invesco QQQ Trust (QQQ) had its 2-session winning streak snapped following the intraday pullback to $191.17. Current and upper support at $191.50-$191 was breached but held.
A move below the latter would be an slightly bearish signal for a further backtest towards $189.50-$189 and the 50-day moving average.
Near-term resistance is at $192-$192.50. A close above the latter would be a bullish signal for a retest towards $194.50-$195 with the July all-time high at $195.55.
RSI is flatlining with resistance at 60.
A close above this level would signal additional strength towards 65-70 with the latter representing the July high. Current support is at 55-50. A move below the latter would signal a retest towards 45-40.
The Dow Jones Transportation Average ($TRAN) settled lower despite testing an intraday high of 10,426. Near-term and early August resistance at 10,400 was tripped but held. Continued closes above this level would be a bullish signal for continued strength towards 10,500-10,600.
Current support is at 10,300-10,200 and the 50/200-day moving averages. A close below the latter would signal a near-term top with downside risk towards 10,100-10,000.
RSI is back in a slight downtrend with support at 50. A close below this level would signal additional weakness towards 45-40. Resistance is at 55-60.
The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 57.28% on Friday, up 1.95%, with the session high reaching 59.22%.
Near-term and lower resistance at 57.5%-60% was cleared but held. A close above the latter would be an ongoing bullish signal for strength towards 62.5%-65%.
Current support is at 55%-52.5%. A close below the 50% level would be a slight bearish development with weakness towards 47.5%-45%.
The percentage of S&P 500 stocks trading above the 200-day moving average closed at 64.55%, up 1.58%, with the session peak reaching 65.34%.
Lower resistance at 65%-67.5% was breached but held. A close above the latter would signal additional strength towards 62.5%-65% and mid-June hurdles.
Support is at 62.5%-60%. A move below the latter would signal additional weakness towards 57.5%-55% and prior levels from earlier this month.
Volatility Index – The S&P 500 Volatility Index ($VIX) traded in the red throughout the session while testing a late day low of 14.91. Near-term and lower support at 15.50-15 was breached but held on the close back below the 50-day moving average.
This represented the 1st time since late July the VIX has closed at or below the 15 level and remains a bullish signal for the market with fresh downside targets at 14-13.50.
Lowered resistance is at 16-16.50 with a close above 17-17.50 and the 200-day moving average signaling caution.
We are allocating the portfolio as follows:
50% in ZIV closed on Friday at 68.45
50% in EDV closed on Friday at 145.87
All the best,