The S&P 500 finished at the low of the day on Friday, after opening sharply lower on the pre-market release of May nonfarm employment data. The Industrials (XLI), Financials (XLF) and Materials (XLB) were among the worst performers, as the lower beta sectors outperformed.
On Friday, the May nonfarm payrolls reported 431,000 vs. consensus 536,000 – a huge disappointment. In a post on 6/2 (“Friday’s Jobs Report - Great Expectations”), we noted the spread between what the economists were saying and what reality turned out to be since 2008 and 2009, when nobody saw the recession coming. Temporary census workers reflected 411,000 of the gain, perhaps the key concern in the figure; April payrolls were unrevised from 290k. The unemployment rate dropped to 9.7% vs. consensus 9.8%, and prior month 9.9%.
The DXY rallied 1.3% on Friday and the Risk Management models have the following levels for the USD – Buy Trade (86.90) and Sell Trade (88.29). The VIX rose 20% on Friday and 10% last week. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (30.77) and Sell Trade (39.29).
Comments made by a spokesman for Hungarian PM Orban served to increase fears of contagion in the Eurozone on Friday and only added to Thursday’s talk of a Greek-style scenario unfolding in Hungary. The CDS spread on government debt widened significantly, and the forint traded lower on Friday. The Euro also fell sharply, and broke thru a key quantitative level of $1.21, as European markets closed lower on the day. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.19) and Sell Trade (1.22).
The Industrial sector (XLI) was the worst performing sector on Friday, declining 4.7%. Concerns over the jobs release and the pace of the economic recovery put pressure on the RECOVERY trade. The transports index declined 4.84%; the S&P Railroads index declined 5.54%; the Airlines index declined 4.68%.
Energy (XLE) and Materials (XLB) rounded out the bottom three performing sectors. The XLB was led by the S&P Steel index declined 5.95%. The sector came under pressure following price cuts at Chinese steelmaker Baosteel. The XLE declined with the market amid continuing uncertainty around the ongoing situation in the Gulf of Mexico and the pace of economic recovery.
On Friday, the CRB declined 2.5% and finished down 2.4% for the week. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (68.55) and Sell Trade (72.39).
On a relative basis, Consumer Staples (XLP) and Healthcare (XLV) were the two best performing sectors on Friday. Last Friday, UNH and WLP outperformed following a NYT article summarizing the evolving relationship between insurers and the Obama administration.
The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.76) and Sell Trade (3.03).
The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,203) and Sell Trade (1,232).
As we look at today’s set up for the S&P 500, the range is 29 points or 1.1% (1,053) downside and 1.6% (1,082) upside. Equity futures are trading mixed to fair value in the wake of Friday's more than 3% drop. Weekend news flow was light and there are no major economic or corporate releases due out today.