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THE GIST (“THE WHAT”)
Ending a 5-day winning streak, the S&P 500 index retreated from its all-time highs after a surprisingly stronger-than-expected jobs report further dented hopes of a potential Fed rate cut. However, charting three straight all-time highs in a row, the index posted a solid weekly gain of 2.24% on the back of easing trade jitters, albeit on a relatively thin volume in the holiday-shortened week.
Tumbling at the open, the index bounced off the day’s low of 2967.97 as investors digested the strong jobs report as mostly good news for the economy. Rising steadily during most part of the afternoon session, the index closed at 2990.41, down 5.41 points off the all-time highs and losing 0.18% over previous session’s close. Seven out of the eleven primary sectors closed lower with weakness in Health Care stocks overshadowing modest gains in Financials stocks.
THE DETAILS (The “How & Why”):
Hopes of a potential rate cut by the Federal Reserve were dashed after the Labor Department released its jobs report that indicated that the U.S. economy added 224,000 jobs in the month of June, surprisingly above the expected reading of 165,000 and significantly above the 75,000 jobs added during the previous month. Treasuries were sold-off across the board, sending yields higher. The 10-year yield soared above its closely-watched 2% level to settle at 2.039%.
Financial sector led the day’s advances, up 0.38% alongside bank stocks that benefited from rising yields. Jefferies Financial Group Inc. was the best performer within this space, jumping 3.38% after posting a strong second-quarter results. Retail and departmental chain stocks also traded higher on expectations that an increase in jobs numbers could boost consumer spending over the coming weeks. Nordstrom Inc., Foot Locker Inc. and Macy’s Inc. all gained more than 2% apiece.
Communication Services, Consumer Discretionary and Energy sectors posted slight gains on the back of a relatively low volume. Oil prices inched slightly higher as investors weighed the impact of extended supply cuts by the OPEC against the worries of falling global demand.
On the other hand, Health Care sector was the biggest drag on the index, down 0.73%. Biotech and pharmaceutical stocks fell after President Trump hinted that his administration is working on an executive order that would require the drug companies to lower their drug prices relative to the lowest international prices. Regeneron Pharmaceuticals Inc., Nektar Therapeutics, Vertex Pharmaceuticals Inc., AbbVie Inc. and Alexion Pharmaceuticals Inc. all declined more than 2% apiece.
Rising yields also hurt Real Estate stocks. The U.S. Dollar surged against a bucket of other major currencies following an upbeat jobs report, sending dollar-sensitive Materials and Industrials stocks lower. Meanwhile, chip stocks remained under pressure on concerns of fading demand after Samsung Electronics Co. cut its second-quarter profit guidance by almost 56%, citing weakening demand for its memory chips.