U.S. markets rallied for a 3rd-straight session following a stellar jobs report as trade headlines took a back seat to better-than-expected economic news.

The gains pushed the major indexes back towards previous resistance levels and within striking distance of another round of fresh all-time highs.

The Dow jumped 1.2% after trading to a late day peak of 28,035. Prior and lower resistance at 28,000-28,200 was cleared and held with a move above the latter and the all-time high of 28,174 getting 28,400-28,600 in focus.

The Russell 2000 also rallied 1.2% to a 52-week intraday high of 1,637.

Near-term and lower resistance at 1,635-1,650 was breached but held with a close above the former getting 1,660-1,675 in play.

The Nasdaq was higher by 1% following the 2nd-half run to 8,665.

Previous and lower resistance at 8,650-8,700 was recovered with a close above the latter and the all-time high at 8,705 leading to a possible push towards 8,750-8,800 over the short-term.

The S&P 500 soared 0.9% after trading to a late day high of 3,150. Lower resistance at 3,125-3,150 was cleared on the open with a close above the former and the all-time record high at 3,154 signaling additional momentum towards 3,175-3,200.

For the week, the Russell 2000 gained 0.6% and the S&P 500 added 0.2%. The Nasdaq and the Dow dipped 0.1%.

Energy and Financials led sector strength with gains of 1.9% and 1.3%, respectively. Utilities were the only sector laggard after giving back 0.3%.

For the week, the best performing sectors were Energy (1.4%), Consumer Staples (1.1%) and Healthcare (0.9%). Industrials (-1.1%), Consumer Discretionary (-0.6%) and Technology (-0.5%) were the worst sector performers.

The Q3 earnings season is winding down with less than 10 S&P 500 companies left to report.

Total earnings for the 491 index members that have reported already were down -1.5% from the year-earlier level on 4.3% higher revenues, with 72.7% beating EPS estimates and 58.2% topping revenue estimates.

For the Retail sector, Q3 results from 96.6% of the sector’s market cap have been reported. Total earnings for these sector companies are up 1.9% from the same period last year on 9.2% growth in revenues, with 64.7% beating EPS estimates and 55.9% above revenue estimates.

For the small-cap S&P 600 index, Q3 results from 568 companies, or 94.5% of the index’s total membership, have been announced.

Total earnings for these companies are down -18.5% from the same period last year on 2.4% higher revenues, with 58.8% topping EPS estimates and 58.3% clearing revenue estimates.

Overall, total earnings for the S&P 500 index are expected to be down -3.6% in Q4 from the same period last year on 2.9% higher revenues, with the Energy sector seen as a big drag on growth.

Energy sector earnings are expected to be down -41.1% from the same period last year on -6.9% lower revenues. Excluding the Energy sector, total earnings for the index would be up 1.9%.

Sectors with weak growth in Q4, besides Energy, include Autos (-56.2%), Basic Materials (-20.2%), Aerospace (-17.4%), Industrial Products (-7.7%), Retails (-6.5%), Tech (-3.7%), and Transportation (-2.9%).

Looking ahead, Q4 earnings are expected to be below the year-earlier level for a number of sectors. Sectors with positive earnings growth in Q4 include Utilities (19.1%), Business Services (8.8%), Finance (7.8%), and Medical (2.8%).

Estimates for Q4 have come down since the quarter got underway, with the current at -3.6% from 1.1% at the start of October.

Total 2019 earnings for the S&P 500 index are expected to be down -1.6% on 2.6% higher revenues, which would follow the 23.2% earnings growth on 9.2% higher revenues in 2018. Growth is expected to resume in 2020, with earnings growth of 8.1% on 4.2% higher revenues.

Global Economy – European markets rebounded to close the week higher.

UK’s FTSE 100 advanced 1.4% while France’s CAC 40 and the Stoxx 600 were higher by 1.2%. The Belgium20 rose 1.1% and Germany’s DAX 30 was up 0.9%.

Asian markets also settled higher amid cautious optimism that a phase one trade deal between the U.S. and China can be reached ahead of the looming U.S. tariff hike on Chinese goods.

Hong Kong’s Hang Seng rallied 1.1% and South Korea’s Kospi soared 1%. Australia’s S&P/ASX 200 and China’s Shanghai climbed 0.4% while Japan’s Nikkei edged up 0.2%.

Nonfarm payrolls surged 266,000 in November, sharply beating expectations of 190,000, with revised gains of 156,000 in October and 193,000 in September, for a net gain of 41,000.

The unemployment rate slipped back to 3.5% versus 3.6% previously. Average hourly earnings rose 0.2% versus October’s 0.1% rise and are up 3.1% year-over-year versus the prior 3.2%.

The workweek was steady at 34.4. The household survey showed an 83,000 rise in civilian employment after the prior 241,000 gain, with the civilian labor force up 40,000 after climbing 325,000 previously. The participation rate dipped to 63.2% versus 63.3%. Private payrolls were up a hefty 254,000 versus 163,000.

The goods producing sector added 48,000 after the prior -25,000 decline.

There was an 54,000 bounce in manufacturing following -43,000 in October. The service sector added 206,000 jobs from 188,000. Government jobs were up 12,000 from -7,000, with Federal jobs dipping -1,000 from -16,000.

Consumer Sentiment rose 2.4 points to 99.2 in the preliminary December print, topping forecasts of 96.9, and the highest since the 100 reading in May.

Both components improved, but paced by the current conditions index which climbed to 115.2 from November’s 111.6 print. The expectations component rose to 88.9 versus the prior 87.3. The 12-month inflation gauge dipped to 2.4% versus 2.5%. The 5-year rate slipped to 2.3% versus 2.5%.

Wholesale Trade Inventories edged up 0.1%, while sales fell -0.7% in October. There was no revision to September’s -0.7% decline in inventories but the prior unchanged reading on sales was nudged down to -0.1%. The inventory-sales ratio was at 1.37, up from 1.36.

Baker-Hughes Rig Count reported the U.S. rig count was down 3 rigs to 799, with oil rigs down 5 to 663, gas rigs up 2 to 133, and miscellaneous rigs unchanged at 3.

Consumer Credit for October checked in at $18.9 billion versus forecasts of $15.8 billion for the month. Non-revolving category, rose to $11 billion after a prior $9.4 billion increase.

Revolving credit posted a $7.9 billion gain after edging up $200 million in September. For Q3, credit increased $51.8 billion, with a $42.1 billion Q2 gain.

Market Sentiment – Fedspeak has been quiet ahead of this week’s FOMC meeting. The November jobs report likely validates the FOMC’s October decision to move to the sidelines. Implied rates reflect only a slim chance for a rate cut over the first half of 2020.

The iShares 20+ Year Treasury Bond ETF (TLT) extended its losing streak to 3-straight and was down for the 6th time in 7 sessions following the pullback to $137.86.

Prior and upper support from mid-November at $138-$137.50 was tripped but held. A close below the latter would be an ongoing bearish signal with weakness towards $136.50-$135.

Lowered resistance is at $138.50-$139 followed by $139.50 and the 50-day moving average.

RSI remains in a downtrend with support at 45.

A move below this level would signal additional weakness towards 40-35 with the latter representing the November low. Resistance is at 50-55.

Market Analysis – The Spider S&P 500 ETF (SPY) was up for the 3rd-straight session after zooming to an intraday high of $315.31. Prior and lower resistance at $315-$315.50 was cleared but held.

A move above the former and the all-time high of $315.48 would be an ongoing bullish development with upside potential towards $317.50-$320, depending on momentum.

Fresh support is at $314-$313.50.

A close below the $312.50 level would signal another near-term top with backtest potential towards $311.50-$310.

RSI is in an uptrend with resistance at 70.

A close above this level would signal another test towards 75 and November highs. Support is at 60 with risk towards 55-50 on a move back below this level.

The iShares MSCI Emerging Markets Fund (EEM) was also higher for the 3rd-straight session with the intraday peak reaching $43.13. Prior and lower resistance at $43.25-$43.50 was cleared and held.

A close above the $43.50 level would be an ongoing bullish signal for a retest towards $44-$44.25 with the former representing the early November high. The 52-week high from mid-April is at $44.84.

Current and new support is at $42.75-$42.50 and the 50-day moving average. Backup help is at $42.25-$42 and the 200-day moving average.

RSI is in an uptrend with resistance at 55-60.

Continued closes above the former level would signal additional strength towards 65-70 with the latter representing the early November top. Support is at 50.

The percentage of S&P 500 stocks trading above the 200-day moving average closed at 75.64% on Friday, up 3.51%, with the intraday high reaching 75.88%. Key resistance at 75% was cleared and held.

Continued closes above this level would be an ongoing bullish signal with upside potential towards 77.5%-80% and January 2018 overbought levels. Support is at 72.5%-70%.

The percentage of Nasdaq 100 stocks trading above the 50-day moving average settled at 72.81%, up 3.88%, with the high reaching 73.78%. Current resistance at 72.5%-75% was cleared and held.

A close above the latter would be an ongoing bullish signal with strength towards 77.5%-80% and late June highs. Near-term support is at 70%-67.5%.

A close below the latter would be an slightly bearish signal for additional weakness towards 65%-62.5%.

All the best,
Roger Scott.