Weakness in consumer goods despite the payrolls number

Fed’s rate cut historic plunge David Dreman Strong brands payrolls numberpasja1000 / Pixabay

Commenting on today’s trading which saw an impressive payrolls number, Gorilla Trades strategist Ken Berman said: 

While the Nasdaq showed relative weakness throughout the day, the tech benchmark still closed at its highest level ever, with the S&P 500 also erasing its recent losses. Tesla’s (TSLA, -20.4%) deep correction and the weakness among the tech giants weighed on the Nasdaq today, but since the large-cap indices finished near their intraday highs and the Russell 2000 also shined, bulls clearly remain in control.

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Q4 2019 hedge fund letters, conferences and more

The major indices finished higher for the third day in a row, despite the weakness in the market-leading tech sector, with the blowout ADP payrolls number and the easing coronavirus-related fears propelling stocks higher. The Dow was up 483, or 1.7%, to 29,291, the Nasdaq gained 41, or 0.4%, to 9,509 while the S&P 500 rose by 37, or 1.1%, to 3,335. Advancing issues outnumbered decliners by an almost 4-to-1 ratio on the NYSE, where volume was well above average. 

Bullish numbers

We saw clear signs of bullish ‘rotation’ on Wall Street, with the recently lagging materials, financials, and the Dow leading the way higher today. Industrials and healthcare stocks were also very strong, but consumer goods showed weakness despite the great payrolls number and the bullish ISM non-manufacturing PMI. Energy-related issues, such as Exxon (XOM, +4.6%) and Chevron (CVX, +3.3), and United Health (UNH, +5.3%) contributed the most to the Dow’s rally, but mega-cap banks also pulled their weight as Treasury yields jumped higher.

Despite the rumors regarding an effective coronavirus treatment, the World Health Organization (WHO) confirmed that the epidemic is still raging in China. Experts also warned that other countries, including the U.S. are likely to be impacted in the coming weeks, so while the major indices paired their losses, it’s still too early to say that the outbreak is ‘priced in’. While energy stocks surged higher today and the price of crude oil also increased, the most-affected sector could remain under pressure as China might even enter a technical recession due to the epidemic.

Payrolls number and beyond: A look at economic data

This week’s bullish economic numbers, together with the improving global sentiment and the rally in Treasury yields led to a breakout in the Dollar Index (DXY) today. The currency hit its highest level since early December as the U.S. manufacturing and services sectors and the job market all provided positive surprises. While Friday’s government jobs report could reshape financial markets, the relentless buying pressure in domestic stocks also confirms the improving outlook of the U.S. economy and its relative strength in comparison to the other developed countries.

The jobs market will be in focus once again tomorrow, in terms of economic releases, with non-farm productivity, unit labor cost, the weekly number of new jobless claims, and the Challenger Job Cuts estimate all coming out before the bell. The European Union’s (EU) economic forecasts will also be released in pre-market trading, and since the European Central Bank President Lagarde is also scheduled to speak, bond and currency markets could be in for a wild morning. Stay tuned!

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