Friday,March9, 2018, 10:35 AM, EST
- NASDAQ Composite +0.92% Dow +0.85% S&P 500 +0.81% Russell 2000 +0.73%
- NASDAQ Advancers: 1425 Decliners: 623
- Today's Volume (vs. yesterday) +10.41%
Risk is back on today as U.S. equities are trading broadly higher following the robust NFP report and easing of political tensions in Korea. Currently 9 of the 11 S&P 500 sectors are in the green with Energy (+1.33%), Tech (+0.92%) and Financials (+0.89%) the outperformers. The underperformers today include Utilities and Telco. Crude oil is up over 1.7%, while Gold has given back 0.5%, the dollar is higher and the yield on the 10-yr has increased to 2.899%.
- The U.S. Department of Labor released solid employment numbers today for February showing employers added the most workers since 2016. The total number of non-farm payroll jobs increased by 313,000 jobs, well above polled expectations of 205,000 new hirers. The report also revised up the last 2 months numbers signaling continued strength in hiring. With this report, the unemployment rate remained constant at 4.1% with January. Another good fact in the report was the uptick in the labor force participation to 63% from 62.7%. Average hourly earnings, on a year-over-year basis decreased by 0.2% to 2.6% from expected growth of 2.8%. The month-over-month wage comparison increased 0.1%, below the 0.2% expectation. The increase in jobs and participation bodes well for the economy and GDP growth.
- The jobs report is seen as key component for the FOMC when determining monetary policy. With today's strong report, the FED will need to reconsider inflation and reassess the idea of full employment in the U.S. Chicago Fed President Charlie Evans spoke to this on CNBC today, "my view has been that the economy is extremely strong, fundamentals are good so the tax cut was simulative and then the spending increases even more so. So some people have said head winds have become tail winds and I see their point. Strong growth, we might get 3% this year and that would be a very big number at this point in the cycle. What does this mean for inflation? I continue to be nervous that inflation is running under 2%, although the strength of the economy in the most recent six-month average inflations has been about 2%. So I am going to focus on the 12 month and look forward to the March inflation data rolling off."
- In a stunning sign of easing tensions on the Korean peninsula , after month of tough talk and sanctions and a first for a sitting U.S. president, Donald Trump has agreed to meet with North Korean Leader Kim Jong Un by May. North Korea said they will suspend their nuclear missile testing as a sign of good faith ahead of the talks. This is viewed as calming effect on the global geo-political front and good for markets. Details from the White House of the upcoming discussions are still pending.
Technical Take: Community Banks Poised for a Breakout
The February NFP report blew away consensus estimates and last month's number was revised 20% higher. Meanwhile average hourly earnings actually came in below expectations which in a perverse way is being received positively by markets as it relieves inflationary concerns which only a month earlier triggered a double-digit correction in equities. All in all it was a goldilocks report reaffirming the health of the US economy. A strong economy should be reflected by its banking industry, and yes the S&P Financials Index is fresh off back to back years of 20% gains in both 2016 and 2017. However community banks recently have not fared as well. The Nasdaq OMX ABA Community Bank Index (ticker ABQI) represents more than 180 small and mid-sized banks across the United States with a market cap range of $177M to $10B. The ABQI performed strongly in 2016, +35%, but followed that up with a decline of (0.7%) in 2017. The disparity in performance between the S&P Financials Index and the Nasdaq Community Bank Index is due in part to the composition of members and interest rates. Generally speaking many members of the SPX Financials index have a broader number of business lines generating fee income (credit cards, banking, processing, etc), whereas community banks tend to largely represent pure branch bank lending.
As such the latter are leveraged more so to interest rates and the yield curve. On that note for much of 2017 rates declined and the curve flattened, a reversal from the spike higher and curve widening seen in Q4'16 following the election. Q4'16 was the strongest quarterly performance, +28%, in the history of the ABQI index. However rates are gain on the rise and the belly of the curve (3month-2yr spread) has mostly been widening since July of '17. From a technical perspective, the community bank index appears to be chomping at the bit to reclaim its place at the head of the leaderboard. What we mean by that is, after 2016's robust 35% gain, momentum conditions as measured by the weekly RSI reached an all-time high. This not only reflects the bullish price action, but also suggest a period of consolidation was in order. And that is what we saw for most of 2017. Now after 12-months of corrective price action, the ABQI Community Bank Index is testing the upper resistance line which is converging closely towards its clearly defined rising trendline (i.e. support) originating from the Q1'16 lows. The convergence of resistance and support is now resulting in coiling price action, within a large corrective base. When the eventual breakout comes, up or down, these types of technical setups often transition from correction to powerful trending price action. Given that the prior trend was higher, combined with the positive fundamental backdrop of rising rates and a healthy economy, the bias is for an upside breakout possibly in the near future. The size of the base projects a minimum upside measured move towards the 3,000 level, +13% from last sale.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq's Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.
Brian Joyce, CMT is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).