Stocks closed slightly lower Friday following a strong jobs report and the resulting expectation that the Federal Reserve will begin raising interest rates as early as September. Bonds fell and yields jumped with the benchmark 10-year Treasury’s yield rising to an eight-month high, closing at 2.4%.
The Dow Jones Industrial Average and S&P 500 lost ground, but the Nasdaq gained 0.2% and the Russell 2000 rose 0.8%. The Dow is now down 2.7% from its May 19 high, and the S&P 500 is off 2% from its May 20 high. The pullback has been blamed on strong jobs numbers, continued problems with the repayment of Greece’s debt and lower crude oil prices.
Briefing.com forecasted the addition of 225,000 jobs last month, but the report turned out to be much better than expected at 280,000. This, along with a 0.3% increase in hourly wages and a 0.5% increase in earnings, make it clear the Fed’s rate hike trigger point of 2% inflation is in sight. Strong May auto sales and an improving trade picture add to the overall case for slightly higher inflation.
The U.S. dollar jumped to a 13-year high against the yen and rose to $1.11 against the euro. Gold fell 0.6% to $1,167.80 an ounce. Crude oil futures rose 1.9% to $59.13 a barrel.
At Friday’s close, the Dow Jones Industrial Average was off 56 points at 17,849, the S&P 500 fell 3 points to 2,093, the Nasdaq gained 9 points at 5,068, and the Russell 2000 was up 10 points at 1,261.
The NYSE’s primary market traded 784 million shares with total volume of 3.2 billion. The Nasdaq crossed 1.8 billion shares. On the Big Board, decliners outpaced advancers by 1.1-to-1, and on the Nasdaq, advancers led by 1.8-to-1.
For the week, the Dow fell 0.9%, the S&P 500 lost 0.7%, the Nasdaq was unchanged, and the Russell 2000 rose 1.2%.
The Nasdaq and small-cap Russell 2000 are bullish. The Russell, here represented by the iShares Russell 2000 Index (ETF) (NYSEARCA:IWM), shows increasing upside volume, two recent buy signals from my proprietary indicator, the Collins-Bollinger Reversal (CBR) marked by the red arrows, and a tenacious ability to stay above its 50-day moving average, now at $124.24. MACD is also bullish.
The big caps, as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), are not keeping pace with the small caps. There is a mild increase in downside volume. SPY fell below its 50-day moving average at $210.05 and is now challenging support at $209.
Conclusion
The small caps are leading, and that is good for the overall market. Recently, breaks to new highs have been led by the Russell 2000 and Nasdaq. Increased volume and negative market breadth have accompanied the S&P 500 and Dow, although until Friday, the Nasdaq had mild negative breadth.
The market is not roaring ahead; however, neither are we experiencing a broad-based decline. Traders and investors alike should focus on smaller stocks, as well as the financials.
This week, the focus of the Trade of the Day will be the financial sector. The Fed is more likely to raise rates this year and this group, especially the regional banks, should benefit from a favorable rate spread. In short, it’s time to buy banks.
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.
