U.S. markets showed strength throughout Friday while closing near session highs following a surprisingly strong jobs report. The small-caps and Tech led the way higher while the Transports also had an especially strong day which was another positive sign for the market.

The gains help offset two days of selling pressure with the major averages closing mostly higher for the week, excluding the blue-chips.

Volatility settled back below a key level of support but is giving a neutral reading following last week’s whipsaw action.

The Russell 2000 zoomed 2% after ending at 1,614 and session high. Major resistance from early October at 1,600 was finally cleared and held with fresh hurdles now at 1,620-1,635.

The Nasdaq surged 1.6% following the late day push just north of 8,164 and a level that held into the close. Prior resistance at 8,150-8,200 was cleared and held with the all-time high at 8,176.

The S&P 500 soared 1% after reaching a late day peak of 2,947 while closing a couple points below this level. Prior and major resistance at 2,950 held with the all-rime peak at 2,954 and blue-sky territory towards 2,975-3,000 on continued closes above these levels.

The Dow was higher by 0.8% while testing an intraday peak of 26,534.

Lower resistance at 26,500-26,750 was cleared and held with a move above the latter getting 27,000 in play with the all-time high at 26,951.

For the week, the Russell 2000 rallied 1.6% and the Nasdaq edged up 0.2%, its 6th-straight weekly win. The S&P 500 was up 6 points, or 0.2%, while the Dow was down 39 points, or just over 0.1%.

Industrials and Consumer Discretionary jumped 1.2% to led sector strength while Materials, Communication Services and Technology rose 1%. There were no sector laggards.

The best performing sectors for the week included HealthCare (1.5%), Financials (1.3%) and Industrials (1.1%).

Energy (-5.1%) was easily the worst performing sector followed by Communication Services (-1.5%) and Consumer Discretionary (-0.9%).

The Q1 earnings season is three-quarters of the way complete with results from more than 77% of S&P 500 members having reported. For the 388 S&P 500 members that reported numbers, total earnings growth is up 1% on 4.2% higher revenues.

Total earnings and revenues were up 15.2% and 6.4% for the same group of companies in the preceding quarter, respectively.

Net margins for the these index members came in at 12.8%, which compares to 13.2% for the same companies in the year-earlier period.

Total Q2 earnings for the S&P 500 index are expected to be down -0.8% from the same period last year on 4.9% higher revenues.

However, the pace and magnitude of negative revisions to Q2 estimates is lower than what analysts had been seeing at the comparable period in the preceding quarters.

Looking at Q1 as a whole, combining the actual results that have come out from the S&P 500 members that have reported with estimates for the still-to-come companies, total earnings are expected to nudge up just 0.1% from the same period last year on 4.6% higher revenues.

Driving the expected Q1 earnings decline is broad-based margin pressures across all major sectors, with net margins for the index at 11.4%, down from 11.9% in the year-earlier and preceding quarter.

Net margins are expected to be below the year-earlier period for most of the major sectors.

Global Economy – European markets settled mostly higher to end the week. Germany’s DAX 30 rose 0.6% while the Stoxx 600 Europe and UK’s FTSE 100 gained 0.4%. France’s CAC 40 climbed 0.2%.

The Belgium20 slipped 0.1%.

Eurozone Inflation advanced to 1.7% in April, up from 1.4% in March, and above forecast for a rise to 1.6%.

Asian markets closed mixed with China’s Shanghai and Japan’s Nikkei remaining closed for a holiday.

Hong Kong’s Hang Seng advanced 0.5%. South Korea’s Kospi fell 0.7% and Australia’s S&P/ASX 200 declined 2 points, or 0.04%.

Non-farm payrolls swelled to 263,000 in April, easily topping expectations of 180,000. Private payrolls were up 236,000 with the unemployment rate dropping to 3.6% versus 3.8% previously, a 50-year low. Average hourly earnings increased 0.2%, the same as March’s 0.2% gain, for a steady 3.2% year-over-year clip.

Hours worked fell to 34.4 from 34.5. The labor force participation rate dipped again to 62.8%, after slipping to 63% in March. As far as specifics, manufacturing employment was up 4,000, with construction up 33,000, and the service sector adding 202,000.

Government employment added 27,000.

International Trade Deficit widened to -$71.4 billion in March versus -$70.9 billion in February. Exports rose 1% to $140.3 billion, from $138.9 billion.

Imports increased 0.9% to $211.7 billion from $209.8 billion. Advance wholesale inventories were unchanged at $668.2 billion after rising 0.1% in February, while retail inventories fell 0.3% to $657.3 billion after February’s 0.2% gain to $659.5 billion.

PMI Services Index for April checked in at 53, a little better than the expectations of 52.8, but down from 55.3 in March. Both employment and prices declined relative to March with the final composite reading coming in at 53 versus 52.8 for the preliminary.

ISM Non-Manufacturing Index slipped another 0.6 points to 55.5 in April, below forecasts of 57.3, after falling 3.6 points to 56.1 in March. Most of the components were mixed with employment falling to 53.7 from 55.9 and new orders sliding to 58.1 from 59.

New export orders bucked the trend and rose to 57 from 52.5 while imports also improved to 55 from 51.5. Business activity rose to 59.5 from 57.4 while prices paid declined to 55.7 from 58.7.

Baker-Hughes reported the U.S. rig count was down 1 rig from last week to 990, with oil rigs up 2 to 807, gas rigs down 3 to 183, and miscellaneous rigs unchanged at 0.

The U.S. Rig Count was down 42 rigs from last year’s count of 1,032, with oil rigs down 27, gas rigs down 13, and miscellaneous rigs down 2. The U.S. Offshore Rig Count was down 1 rig to 20 but up 1 rig year-over-year.

Market Sentiment – Cleveland Fed Loretta Mester fully supports the FOMC’s patient approach while adding job growth and prices are stable.

She doesn’t see inflationary pressures building as people are getting back to work and wages are growing in line with productivity but not accelerating.

She reiterated Powell’s position that there is good reason to think that some of the weakness in inflation is transitory, but she’s monitoring and would become concerned if she saw a condition of falling prices and weakening in aggregate demand. She projects growth in the 2%-2.5% area, with balanced risks.

Fed Vice Chairman Richard Clarida stated the economy is in a very good place and confirmed the wait-and-see stance monitoring the data.

He said the federal funds rate is now in the range of estimates of its longer run neutral level, and the unemployment rate is not far below many estimates.

Clarida also said with the economy operating at or very close to the Fed’s dual-mandate objectives and with the policy rate in the range of FOMC participants’ estimates of neutral, analysts can afford to be data dependent.

Chicago Fed’s Charles Evans said low inflation is his concern, and those worries have been elevated by recent data. He sees the threat of inflation remaining stuck below 2%, which would raise strategic concerns for the FOMC.

He believes the Fed should communicate it is comfortable with letting core inflation rise to 2.5%, as long as there is no obvious upward momentum and the path back toward 2% can be well managed.

Meanwhile, he believes economic growth fundamentals are good as downside risks have eased, though they are still larger than upside ones.

St. Louis Fed President James Bullard said the Fed’s monetary measure now is a little tight and may have to be reconsidered. He welcomed the gigantic change in policy earlier in the year, noting the Committee basically came to adopt his dovish views.

He thinks the FOMC is a bit tight with its 2.4% effective funds rate and the real rate should be closer to 0%.

He went on to add he would like to reset inflation expectations to 2%, as he and worries the markets’ views are a little light to that goal. He projects GDP growth at about 2.5% this year, with upside risks, in contrast to prior views of about 2%.

The iShares 20+ Year Treasury Bond ETF (TLT) rebounded to trade to a session peak of $123.88.

Prior and lower resistance $123.75-$124.25 was cleared but held with a move above $124.50 being a more bullish signal.

Current support is at $123.50-$123. A move below the latter opens up risk towards $122.50-$122 and the 50-day moving average.

RSI has been flatlining since mid-April with resistance at 55-60. A move above the latter would signal additional momentum towards 65-70 and late March highs.

Support is at 50-45 with a move below the latter getting the yearly low at 40 in play.

Market Analysis – The Invesco QQQ Trust (QQQ) is trying to break out of a 9-session trading range with Friday’s high reaching $191.25. Prior and lower resistance at $191-$191.50 was cleared and held with the all-time peak at $191.32, a level that was hit twice last week.

Blue-sky territory towards $192.50-$195 remains in play on a close above $191.50.

Current support is at $190.50-$190. A close back below $187.50-$187 and break below the current trading range would be a bearish signal for additional weakness.

RSI is back in an uptrend with resistance at 70.

A move above this level could lead to another run towards 75-80 and late April highs. Support is at 65-60 with a move below the latter signaling additional weakness.

Sector

The Dow Jones Transportation Average ($TRAN) was up for the 2nd-straight session after making a run to 10,986. Fresh and prior resistance at 11,000-11,200 and 52-week peaks are back in focus with a close above the latter getting 11,250-11,500 and all-time highs on the radar.

Current support is at 10,800-10,600 with a move below the latter and the 50/200-day moving averages signaling a false breakout.

RSI is in an uptrend with resistance at 60. A move above this level would signal additional strength towards 65-70 and the late April top. Support is at 55-50 with risk to 45-40 and March lows on a close below the latter.

The percentage of Nasdaq 100 stocks trading above the 200-day moving average closed Friday at 75.72% and session peak. January 2018 resistance remains at 77.5%-80% with last week’s peak reaching 78.64%.

Near-term support is at 75%-72.50% with a move below the latter being a slightly bearish development for additional weakness towards the 70% level and prior resistance from early April.

The percentage of S&P 500 stocks trading above the 50-day moving average settled at 72.27% and the session high, as well.

Near-term and lower resistance at 72.5%-75% held with a move above the latter signaling additional strength towards 80%-82.5% and the mid-April highs. Current support is at 70%-67.5%.

A move below the 65% level and last week’s low of 61.58% could lead to additional weakness towards late March lows in the 60%-57% area.

Position Update

Expecting more range bound market next few sessions.

Next week is last big week of earnings.

Pay close attention to retail sector.

Volatility is now expanding in both directions.

Don’t expect runaway market from the current price levels.

Roger Scott