Friday was all about jobs as the market received the highly anticipated May NFP report. Nonfarm payrolls increased by 175,000 in May, edging out the 163,000 anticipated by economists. However, the unemployment rate was above consensusexpectations at 7.6%, and hourly earnings were flat versus the 0.2% gain Wall Street was expecting.
Nonetheless, the market tends to take its directional bias on jobs day from the headline nonfarm payroll number, so we saw some very positive action in the markets today. Additionally, the report wasn't quite strong enough to generate increased fears that the Fed would taper its QE activities, though it should be noted that many market observers are expecting some form of pullback in intervention this year.
Economically sensitive areas of the market, such as financials, energy, and small caps, performed fairly well. Likewise, US Treasuries sold off sharply, and there was a serious decline in the VIX (INDEXCBOE:VIX) , which had perked up significantly ahead of today's economic numbers.
From a technical perspective, today's rally extended the S&P 500's (INDEXSP:.INX) bounce above its 50-day moving average, which has served as a support level throughout 2013, presaging each stab upward.
On the negative side, we saw deterioration in real estate stocks following a strong start to the day. This area of the market has been under serious pressure, courtesy of the recent rise in interest rates, and it should be watched closely. Additionally, junk bonds sold off following an early pop, indicating that investors still fear a rise in interest rates and/or a slowdown in broader economic activity.
Monday's Financial Outlook
While some may be expecting a boring day, the lack of domestic news doesn't necessarily make that a sure thing. The Japanese market continues to swing wildly on the verge of a bear market, housing may be on the verge of declining, and there is a distinct lack of stability in credit, particularly in high yield.
Plus, we'll be seeing some international economic data reports including Chinese industrial production and retail sales, and Japanese consumer confidence.
Although it seems that there are more things that can go wrong than can go right, the market has successfully fought through imperfect economic fundamentals for quite some time now, so the near-term direction is tricky to gauge.