S&P 500 Slides, Stocks Mostly Mixed as Payrolls Loom

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U.S. equities took a breather on Friday after large-caps broke above their 50-day moving average for the first time since December in the previous session.

The focus remains on crude oil and the odds of any further rate hikes from the Federal Reserve this year. On the latter point, all eyes are on the February non-farm payroll report due next Friday for clues as to what policymakers will do when the next meet on March 15 and 16.

In the end, the Dow Jones Industrial Average lost 0.3% and the S&P 500 lost 0.2%, while the Nasdaq Composite gained 0.2% and the Russell 2000 gained 0.5%.

Materials stocks led the way again, gaining 1.3% as a group to continue a recent string of outperformance. Financial stocks followed with a 0.7% gain. Utilities and consumer staples, both defensive areas, brought up the rear.

The rise in material stocks boosted the SPDR S&P Metals & Mining (ETF) (NYSEARCA:XME) recommended to Edge subscribers to a 1.1% gain as shares prepare for a possible upside breakout above the $16 level as shown below.

XME chart

Retail stocks were in focus with a bevy of earnings reports. Gap Inc (NYSE:GPS) lost 1.3% after in-line profits but guidance below the Street’s estimates. J C Penney Company Inc (JCP) gained 14.7% after Q4 earnings beat analysts’ expectations thanks to cost controls and a 4.1% increase in comp-store sales. Forward guidance was also strong.

Despite Oprah Winfrey’s involvement, Weight Watchers International, Inc. (NYSE:WTW) fell 29% after reporting an unexpected Q4 loss on a 5% drop in subscribers.

On the economic front, the second estimate of Q4 U.S. GDP growth was revised higher to a 1.0% result from 0.7% previously. Most of the change was driven by volatility in the inventories and trade data. Core PCE inflation, which is the Fed’s preferred measure, surprised to the upside to rise to a 1.7% annual rate from 1.5% in December — the quickest month-over-month acceleration since late 2012.

Looking Ahead

In the wake of the inflation data, not one but two Fed speakers talked up reasons to not completely dismiss the odds of another 0.25% rate hike in March. The futures market continues to dismiss this possibility, with another rate hike not priced in until 2017 and the odds of a policy tightening next month between just 10% and 20%.

We’ll know more when the February jobs numbers are released. Deutsche Bank is looking for a payroll gain of 195,000 (vs. 151,000 previously) with a possible 0.1% in the unemployment rate (bringing it back to 5.0%) on a bounce back in the labor participation rate.

Technically, things are looking good for a further upside extension as the calendar prepares to flip into a new month. Breadth continues to expand as a wider and wider swath of the market participates in the rallies — a sign of robust buying demand. The percentage of S&P 500 stocks in uptrends, despite today’s tepid closing numbers, gained 10% to push to 57.4% returning to levels not seen since December.

022616-sp-bullish

Last time this many large-cap stocks were moving higher, the Dow Jones was up 1,000 points from here.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/02/sp-500-slides-stocks-mostly-mixed-as-payrolls-loom/.

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