On Friday, the S&P 500 got a boost from the end of the financial reform saga and a boost in the RECOVERY trade; the Russell 2000 was the best performing index in the world on Friday.
The Financials (XLF) dramatically outperformed, up 2.7% on the day, as the Banks led the way with the BKX up 2.9%. With the consensus thinking that the financials “dodged a bullet,” the final impact to business is still to be determined.
While the sectors leveraged to the recovery trade got a boost on Friday, the latest MACRO data released on Friday does not support the move. GDP came in slower than originally released and consumer sentiment improved in June. The 1Q10 GDP (final number) is now 2.7% vs. consensus of 3.0% (personal consumption 3.0% vs. prior 3.5%, GDP Price Index 1.1% vs. consensus 1.17%, and Core PCE 0.7% vs. consensus 0.6%).
Treasuries finished higher on Friday, with the weaker economic growth numbers. The dollar index traded down 0.45% on the day and the Hedgeye Risk Management models have the following levels for the USD – Buy Trade (85.21) and Sell Trade (86.57). The VIX declined 4.1%, but was up 19.1% for the week. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (23.89) and Sell Trade (31.53).
The Euro moved higher by 0.1% on Friday, but declined by 0.1% for the week. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade ($1.22) and Sell Trade ($1.24).
Along with the Materials (XLB) outperforming, commodities also had a strong day on Friday. Crude and Copper prices were up 3.1% and 2.9%, respectively. Also, the XAU rose 3.6%; FCX up 4.9%, NEM up 4.6% and ABX up 3.9%. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,241) and Sell Trade (1,259). The S&P Steel Index rose 2.7% (X rose 2.8% and NUE rose 1.5%). The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (77.70) and Sell Trade (79.45).
In early trading today copper is trading at a four month high. Shanghai copper stockpiles decreased by the most in 11 months last week, to the lowest level since the week ended February 19th. The Hedgeye Risk Management models have the following levels for COPPER – Buy Trade (2.98) and Sell Trade (3.11).
The Consumer Staples (XLP) and Technology (XLK) were the only two sectors to decline on Friday. The XLP was dragged down by the S&P 500 Beverages Index which declined 2.6% (KO down 3.0% and PEP down 2.6%).
As we look at today’s set up for the S&P 500, the range is 19 points or 0.8% (1,068) downside and 1.0% (1,087) upside. Equity futures are trading above fair value, as the personal income for May is due out today.