| NEW YORK, June 7
NEW YORK, June 7 The U.S. May jobs report came
in just right for investors - neither too weak nor too strong to
rock the boat - but market participants are now questioning
what's next for stocks.
The equity market is on nebulous middle ground. The S&P 500
is just 1.5 percent away from its all-time closing high, but
other than Friday's rally on the jobs data, it has been stuck in
a period of uncertainty.
The Labor Department added 175,000 jobs in May, slightly
higher than expected, but at a level that indicates the status
quo should hold for the Federal Reserve's stimulus program.
Some had worried that if job growth far exceeded
expectations, the Fed would reduce bond-buying sooner than
expected, while others were concerned that an exceptionally weak
number would reveal a fundamentally soft labor market. The
data's ability to relieve both fears may benefit stocks.
"The number had a little something in it for everybody, in
terms of those who suspect tapering might begin sooner and those
who think it might start later," said Mark Luschini, chief
investment strategist of Janney Montgomery Scott in
Philadelphia, adding that the May payrolls figure could "prime
market participants to be more positive toward equities leading
into next week's trading."
The program is widely cited as a major contributor to the
S&P 500's surge of 15.2 percent in 2013, when it has hit
a repeated series of record highs.
Wall Street's performance has been closely tethered to the
Fed's stimulus program, benefiting from the belief that the
economy is just weak enough to keep the Fed buying bonds.
When Fed Chief Ben Bernanke said on May 22 that the central
bank may decide to reduce purchases if the economy shows signs
of significant improvement, stocks fell and bond yields surged.
The uncertainty has also increased volatility, with the S&P
500 frequently making daily moves of 1 percent or staging
dramatic midday reversals. The CBOE Volatility Index, or
VIX, has risen more than 20 percent over the past three weeks,
although at a level of 15.14, it is still at a level associated
with a relatively calm environment.
"Equity markets are in a period of adjustment," said
Anastasia Amoroso, global market strategist at J.P. Morgan Funds
in New York, which has about $400 billion in assets. "If there's
an unannounced change in policy, that could be a shock to the
That adjustment is likely to keep trading in a narrow range.
On Thursday, the S&P 500 briefly fell under its 50-day moving
average of 1,604, as well as below the psychologically important
level of 1,600, before rebounding. However, the benchmark index
remains below its 14-day moving average of 1,645.08.
This year's gains have been broad, with all 10 S&P 500
sectors sharply higher, so it is difficult to determine which
sectors may be the most vulnerable to a market pullback. The
best-performing sector of the year - health care, up 20
percent - is a defensive group, as is telecom, one of
the year's weaker performers, with a gain of 8.6 percent for the
year to date.
Cyclical sectors, which are tied to the pace of economic
growth and have been especially sensitive to any indication that
Fed policy may be changing, have also outperformed the broad
market this year. However, despite those gains and the Fed
uncertainty, they may not be vulnerable going forward. The
shakier sectors have been the big dividend payers, because
higher yields on safe government debt would make those shares
"Investors haven't simply been 'selling the winners,'"
Bespoke Investment Group wrote in a note to clients this week.
"What investors have been selling are the high dividend payers,
which is not usually what happens on pullbacks. In fact, the
opposite usually occurs, as investors flock to 'safer' plays."
For the week, the Dow Jones industrial average rose
0.9 percent, the S&P 500 added 0.8 percent and the Nasdaq
advanced 0.4 percent.
Next week, there appear to be few obvious catalysts to
change the equation. Only two S&P 500 companies - H&R Block
and PVH Corp - are scheduled to report results.
The economic data calendar is light, though May retail sales
on Thursday and the preliminary reading on June consumer
sentiment on Friday will be closely watched.
Inflation data will also be on the agenda. The U.S. Producer
Price Index, set for release on Friday, is forecast to rise just
0.1 percent in May, according to economists polled by Reuters,
after a drop of 0.7 percent in April. On a year-over-year basis,
overall PPI is expected to rise 1.4 percent in May, the Reuters
"It looks like we're shaping up for a traditional summer
where we'll build a base and perhaps enter into the doldrums of
summer trading," said Frank Davis, director of trading at LEK
Securities in New York.
With the exception of consumer stocks, which could be
affected by the retail data, Davis added, "I'm not anticipating
any meaningful follow-through to next week, but I'm not
anticipating any measurable pulldown either."
(Wall St Week Ahead runs every Friday. Questions or comments
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