The S&P 500 closed down 0.5% on Friday, finishing a week of daily declines and 9 down days out of the last 10 trading days. As expected the nonfarm payrolls data was the highlight of the day, as the data declined for the first time this year as 225K temporary census workers were let go. The unemployment rate fell to 9.5% from 9.7%, consensus 9.8%, as discouraged jobseekers (650K) left the labor pool. The private payroll data was the biggest disappointment out of the jobs data on Friday.
Last week’s MACRO news flow is now overwhelmingly pointing towards a stalling domestic recovery story. In summary, the Chicago PMI, May housing and the domestic ISM all pointed to a slowing growth. China PMI and Global ISM data suggest the slowing growth story is not isolated to the USA.
The slowing global growth story is not yet showing up in the preannouncement earnings season. According to Street account, 13 companies provided earnings updates last week, 7 of which represented an increase from prior guidance or were above consensus compared to 3 declines; this is the first week in which positive announcements outnumbered negative ones since the week ended June 11th. More important will be the commentary about trends for 2H10. According to S&P, the estimate for Q2 operating EPS growth from S&P 500 companies is 42%; the calendar 2010 earnings estimate stands at $82.
Treasuries were mostly weaker last Friday. The dollar index was down and the 10-year traded below 2.90%, before rising again to 2.94% at the end of the day. The dollar index closed slightly higher on Friday, closing at $84.60, up 0.21%. The Hedgeye Risk Management models have the following levels for the USD – Buy Trade (84.31) and Sell Trade (85.37). The VIX moved lower by 8.3% on Friday, but closed up by 5.5% for the week. The Hedgeye Risk Management models have the following levels for the VIX – Buy Trade (24.76) and Sell Trade (35.75).
The EURO was down slightly on Friday but closed up 1.6% on the week. The Hedgeye Risk Management models have the following levels for the EURO – Buy Trade (1.22) and Sell Trade (1.26); the range for the EURO improved by $0.01 to the upside from Friday.
Only two sectors were in the green on Friday - Healthcare (XLV) and Utilities (XLU). The relative strength in the XLV was in Pharma (IHE up 0.5%) and Biotech (BTK up 0.6%), on increasing M&A speculation in the sector.
The three worst performing sectors were Industrials (XLI down 1.2%), Financials (XLF down 1.2%) and Consumer Discretionary (XLY down 1.1%). The XLI was lead lower the Transports (Air/Rails) and the Machinery names. The S&P 500 machinery index was down 1.1%.
Last week copper traded down 6.2% in support of the slowing global growth story. The Hedgeye Risk Management Quant models have the following levels for COPPER – Buy Trade (2.83) and Sell Trade (2.96).
Last week gold saw its biggest decline since the week of April 16th. The Hedgeye Risk Management models have the following levels for GOLD – Buy Trade (1,201) and Sell Trade (1,229).
Oil declined 8.5% last week. The Hedgeye Risk Management models have the following levels for OIL – Buy Trade (71.82) and Sell Trade (75.27).
As we look at today’s set up for the S&P 500, the range is 54 points or 1.7% (1,005) downside and 3.6% (1,059) upside. Equity futures are trading higher ahead of the ISM non manufacturing data.