On Friday, stocks closed mixed as surprisingly weak job numbers and a bond rally inhibited investors from making new commitments.
The non-farms payroll report showed that jobs growth slowed sharply in December. The Labor Department reported that only 74,000 jobs were added, which was far short of economists’ expectations of 200,000. But the good news for the stock market is that the Federal Reserve, under its new Chairwoman Janet Yellen, is unlikely to decrease the bond purchase plan more than the 10% already announced.
The 10-year Treasury note’s yield fell 3.4% to 2.86 — the biggest one-day decline since September. Bond volume was the highest since June.
At the close on Friday, the Dow Jones Industrial Average fell 8 points to 16,437, the S&P 500 rose 4 points to 1,842, and the Nasdaq gained 18 points at 4,175. The NYSE primary market traded 6.7 million shares, and total volume was over 3.2 billion shares. The Nasdaq traded total volume of 2.1 billion shares. On the Big Board, advancers outpaced decliners by 2.5-to-1, and on the Nasdaq, advancers led by 1.4-to-1.
For the week, the Dow fell 0.2%, the S&P 500 gained 0.6%, and the Nasdaq rose 1%.
The pullback in the S&P 500 has been flat with low volume following the December breakout at 1,813. So far, selling was reversed at the 1,827 line, which was the low of Jan. 2 and the close of Jan. 6. Below that line there is support at the 20-day moving average at 1,822, and then the inflection point at 1,813. MACD flashed a minor sell signal but is really just flat.
Conclusion: The Santa Claus Rally that rocketed stocks to new highs should not be dismissed. It was a powerful signal that the bull market is very healthy. Those who are touting seasonal issues like the predictive value of the first five days in January are grasping at straws since price action always trumps seasonal statistics. And statistically, the first five days of January have no historically predictive value, as pointed out by The Stock Trader’s Almanac. But the “January Effect,” which is the period of mid-December to the end of February, has a high correlation to the year’s performance (see Dec. 30 Daily Market Outlook).
Thus far declines have not been supported with high volume, and even potentially bad news, like Friday’s jobs report, was not accompanied by strong selling. Friday’s trading may have appeared indecisive, but that is a favorable sign, and so we remain buyers on pullbacks or breakouts by the indices to new highs.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.