U.S. markets opened sharply higher on Friday following a superb monthly jobs report and easing geopolitical concerns.
The momentum lasted throughout the first half of action with the major indexes trading in a narrower range afterwards and into the closing bell.
Volatility calmed and closed below a major level of support to suggest a continued rally towards prior all-time and fresh record highs.
The Nasdaq surged 1.5% after making an intraday push to 7,557 while clearing and holding the 7,500 level for the first time since mid-March.
The index is just over 1% away from taking out its all-time high of 7,637 set on March 13th and was up 1.6% for the week.
The Russell 2000 rallied 0.9% following a run to 1,650 and coming within a point of its midweek all-time high. The small-caps advanced 1.3% for the week with upside towards 1,675-1,680 on continued momentum.
The S&P 500 soared 1.1% on the midday gallop past 2,736. The index rose 0.5% for the week with a close above the 2,750 level being a continued bullish signal.
The Dow gained 0.9% after reaching a peak of 24,673 but needs to clear resistance at 24,800-25,000 to regain lost momentum.
The index was down 0.5% following a shortened week of choppy trading and more affected by the geopolitical concerns.
Technology led sector strength after surging 1.7% while Materials were higher by 1.5%.
Financial, Health Care, and the Industrials were up 1.1%. Utilities were the only sector laggard after sinking 1.5%.
For the week, Energy advanced 2.4% while Technology rose 1.9%.
Real Estate added 1.7% to pace sector leaders. Financials were down 1.3% with Industrials and Utilities off 0.6%.
There are just a handful companies left to report 1Q numbers with 2Q earnings just a month away.
With 99% of the S&P 500 members having reported Q1 results, total earnings have surged 24.3% from the year ago period on 8.7% higher revenues.
Nearly 77% of the companies reporting have topped EPS estimates and 74.4% have beat revenue estimates.
Looking at Q1 as a total, earnings are expected to be up 24.2% from the same period last year on 8.6% higher revenues.
This would represent the highest quarterly earnings growth pace in seven years. Net Income margins for the quarter are on pace to expand by 1.5%, with the strongest gains in the Finance, Technology and Energy sectors.
Specifically, Energy sector earnings zoomed over 75% from the same period last year on 14.2% higher revenues. Excluding the Energy sector, total S&P 500 earnings growth drops from 24.3% to 22.6%.
For the small-cap S&P 600 index, nearly 95% of the companies have announced Q1 numbers.
Total earnings for these firms have jumped over 25% on 9.4% higher revenues, with 55.6% beating EPS estimates and just over 72% topping revenue estimates.
For the quarter as a total, S&P 600 earnings are expected to be up 20.7% on 9% higher revenues.
For full-year 2018, overall earnings for the S&P 500 index are expected to be up 19.6% on 9% higher revenues. For 2019 and 2020, earnings are expected to be up 9.6% and 9.7%, respectively.
Revenues for the index are expected to be increase by 4.5% in each of the two years.
The implied ‘EPS’ for the index, calculated using current 2018 P/E of 17.4X and index close, is just north of $156. Using the same methodology, the index ‘EPS’ works out to $171.29 for 2019 (P/E of 15.9X) and $187.87 for 2020 (P/E of 14.5X).
Global Economy – European markets were higher across the board after the formation of a new government in Italy and better-than-expected economic news.
The Belgium20 and France’s CAC 40 rocked 1.2% higher. Germany’s DAX 30 and the Stoxx 600 Europe rolled up 1% while UK’s FTSE 100 gained 0.3%.
Eurozone May CPI estimate rose 1.9%, topping forecasts of 1.6%. The May core CPI rose 1.1%, ahead of expectations of 1%.
The Eurozone April unemployment rate fell 0.1% to a nine-year low of 8.5%, but slightly above forecasts of 8.4%.
Following a week of political uncertainty, the League and the 5 Star Movement, struck a deal on reviving a coalition government, ending a five-day impasse and Italy’s political chaos.
Asian markets closed on both sides of the ledger following mixed economic data, with Australia Manufacturing PMI down from the prior month and China’s a tad better.
South Korea’s Kospi was higher by 0.7% and Hong Kong’s Hang Seng climbed 0.1%.
China’s Shanghai was down 0.7% and Australia’s S&P/ASX 200 fell 0.4%. Japan’s Nikkei slipped 0.1%.
The China May manufacturing PMI rose 0.5 to 51.9, stronger than expectations for no change at 51.4.
Non-farm payrolls increased 223,000 in May, which was stronger than the 190,000 job additions expected. The unemployment rate fell to 3.8% from 3.9%, hitting its lowest level since late 1969.
Average hourly earnings rose 0.3% month-over-month and are up 2.7% year-over-year.
PMI Manufacturing Index for May came in at 56.4, just below expectations for a print of 56.6.
ISM Manufacturing Index for May was at 58.7, topping forecasts of 58.5.
April Construction Spending up 1.8%, well above estimates for a rise of 0.8% for the month.
Baker-Hughes reported that the U.S. rig count was up 1 rig from last week to 1,060; oil rigs were up 2 to 861 and gas rigs slipped 1 to 197.
The U.S. Rig Count is up 144 rigs from last year’s count of 916; oil rigs are up 128 and gas rigs were higher by 15. The U.S. Offshore Rig Count was unchanged at 19 rigs and down 4 rigs year-over-year.
San Francisco Fed President John Williams said the Fed doesn’t necessarily have to pause once it raises interest rates to neutral.
This is suggesting Williams might decide to drive rates into restrictive territory if the economy remains strong and inflation is at or above the Fed’s 2% target.
As a side note, several Fed officials, including Dallas Fed President Rob Kaplan and Atlanta Fed President Raphael Bostic, have suggested the Fed might want to take a break when they get rates up to neutral.
The iShares 20+ Year Treasury Bond ETF (TLT) traded mostly lower after bottoming at $119.85 shortly after the opening bell.
Support at $120.50-$120 was stretched with a close below the latter signaling additional weakness towards $119 and the 50-day moving average.
Lowered resistance is at $120.75-$121.25. Continued closes back above $121.50 and the 200-day moving average would signal a return of momentum.
RSI is in a slight downtrend after pushing and briefly clearing the late March peak near the 70 level. Support is at 60 and a level that served as prior resistance from late April thru mid-May.
A move below this level would signal additional weakness.
Market Analysis – The Russell 2000 ETF (IWM) has traded higher in two of three sessions but has peaked at $164.38 in back-to-back sessions.
The all-time of $164.39 was set midweek with resistance at $164.50-$165. Continued closes above the latter could lead to a run towards $167-$167.50 depending on momentum.
Support is at $163-$162.50 with a move below $162 being a possible warning sign for lower lows.
RSI recently tested January resistance at 70 with continued closes back above this level signaling additional strength. Support is at 60-55 with a move below the latter signaling upcoming weakness.
The Technology Select Sector Spiders (XLK) closed higher for the third-straight session while reaching a peak of $71.10.
Lower resistance at $71-$71.50 held with the March 13th all-time high at $71.34. Continued closes above $71.50 could lead to a short-term push towards $72.50-$73 on a double-top breakout.
Rising support is at $70.50-$70 with a close below $69.50 signaling another short-term top.
RSI is back in an uptrend with early May resistance at 70.
A move above the latter would signal additional strength and a possible push towards 75-80 and January peaks. Support is at 65-60.
The percentage of S&P 500 stocks trading above the 50-day moving average closed Friday at 60.03%. Lower resistance at 60%-65% held on the intraday peak of 60.91% with the late May high reaching 65.14%.
Continued closes above the 65% level would be bullish for a possible push towards 70% and December and January support levels. Current support is at 55%-50%.
The percentage of Nasdaq 100 stocks trading above the 200-day moving average settled at 61.16%. Current resistance is at 63%-65% with the latter representing the mid-April peak.
Friday’s high reached 61.16% and a level that has held for 3-straight sessions. Continued closes above the 65% level would be a bullish signal for a run towards 70% and mid-March support.
Current support is at 56%-55% with a move below the latter being a slightly bearish signal.
Existing Position Update
TSLA remains fairly rage bound. I’m expecting price to pullback at the first sign of weakness in the overall market action.
PYPL is moving against our position. Will evaluate trade first part of next week. If weakness doesn’t develop I will roll the position over.