Friday’s close was disappointing considering the much stronger-than-expected November jobs report with nonfarm payrolls rising 321,000 versus an expected increase of 230,000. The Dow responded with a tepid rise of 0.3%, while the S&P 500 and Nasdaq gained just 0.2%.
The explanation for such a mild reaction to the strong job numbers is that good news was interpreted as bad news. Many concluded that the Federal Reserve will accelerate its plan to raise interest rates, which most analysts previously anticipated would be in mid-2015.
The impact of the strong jobs numbers can be seen most clearly in bond yields, which rose as prices fell. The price of the 10-year Treasury note dropped sharply, driving its yield up 6 basis points to 2.31%. The yield on the two-year note popped 10 basis points to 0.65%.
The U.S. dollar gained against both the yen and the euro. It’s possible higher rates attracted buyers from Europe and developing nations. The strongest performing sectors included financials and transportation stocks.
Oil prices continued to slide with crude futures down 1.5% to $65.84 a barrel, the lowest level since July 2009. Gold futures settled at $1,190.40 a troy ounce, down 1.4%.
At Friday’s close, the Dow Jones Industrial Average rose 59 points to 17,959, the S&P 500 gained 3 points at 2,075, the Nasdaq was up 11 points at 4,781, and the Russell 2000 rose 9 points to 1,182.
The NYSE’s primary market traded 755 million shares with total volume of 3.4 billion. The Nasdaq crossed a total of 1.8 billion shares. On the Big Board, there were slightly more advancers than decliners, but on the Nasdaq, advancers outpaced decliners by 1.9-to-1.
For the week, the Dow rose 0.7%, the S&P 500 gained 0.4%, the Nasdaq fell 0.2%, and the Russell 2000 was up 0.8%.
While the widely followed U.S. benchmark indices have inched to new highs, the stocks that we would expect to lead the charge — the small and mid caps — have faltered. They lag both the Dow and S&P 500 in breadth and volume.
I find the declining volume of the iShares Russell 2000 Index ETF (IWM) and SPDR S&P MidCap 400 ETF (MDY) most troubling since it indicates disinterest across a wide breadth of industries.
Even though the overall long-term support for these former leaders is bullish, their recent sluggish behavior is uncharacteristic of charts that will lead the broader market higher.
Conclusion
Since volume and price are the most important factors in evaluating the near-term direction of the market, maintain a cautious approach and stick solely with stocks and industries that show high volume and strong breaks from established and formerly restrictive chart patterns (like the Trade of the Day).
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.
