From Briefing.com: The June employment report proved to be a disappointment and the market's reaction to it was not unexpected as the indices traded lower, but not as low as one would think following the disappointing data.
The tech sector, which led the broader market's advance during the week, was not immune from the selling activity. Ironically, it did maintain its leadership position on Friday, only this time, it led to the downside. All things considered, the losses were modest in scope given that the Nasdaq had rallied 55 points in the two, preceding sessions.
The lack of conviction on the part of sellers was in keeping with the resilient manner in which the tech sector traded throughout the week. In actuality, we should say bullish manner considering the tech-heavy Nasdaq ended the abbreviated week with a gain of 2.3%.
The real proof of the tech sector's disposition, however, will come shortly when the Q2 earnings reporting period picks up. Yahoo! (YHOO) and Juniper Networks (JNPR) will get things rolling in that respect with earnings reports after the close on Wednesday, but it isn't until the following week when the reports from the tech sector start to flow in earnest. Until then, we'll opt to maintain a cautious stance toward the tech sector as we await word as to whether the scope of the recent rally was warranted.-- Patrick J. O'Hare, Briefing.com
2:12PM Weekly Wrap :
There was cause for excitement this week and not just because there was a holiday at the end of it. Rather, there was cause for excitement in the market's resilience to selling efforts and the positive manner in which it started the third quarter.
Additionally, there was a renewed sense that bullish sentiment still prevails. Feeding that sense was the leadership exhibited by the tech sector, the bounce in the major indices that occurred with re-tests of important support levels, and the market's ability to hold its own despite some disappointing indications from the key ISM Index and employment reports for the month of June. The market, though, for various reasons, found a silver lining in each report.
In the case of the ISM Index, which checked in at 49.8 versus the consensus estimate of 51.0, there was some encouragement in the fact that the new orders, production, and employment indices all rose in June. For the employment report, which showed a 30K decline in non-farm payrolls and an uptick in the unemployment rate to 6.4% - the highest since April 1994 - two considerations acted as mitigating factors. The first was that there was still a willingness to believe, despite a jump in initial claims to 430K in the week ending June 28, that employment trends should be improving. The second was the belief that the uptick in the unemployment rate may really be an indication of growing optimism in a strengthening economy as it could reflect more people starting to look for work again. The latter, at least, is how the Labor Secretary opted to spin it.
Arguably, the Treasury market was thinking along the same lines as it traded down in the wake of the employment report. In fact, the 10-yr note fell nearly a point and saw its yield back up to 3.64% on Friday. The yield on the 10-yr note is now up 37 basis points since the FOMC elected to cut rates by 25 basis points at its June meeting - an increase that suggests the Treasury market senses the Fed's easing cycle has come to an end.
A continued backup in interest rates would be a negative for stocks, but for the time being, it isn't too unsettling since inflation remains low and the backup is predicated on a belief that a stronger economic environment lies ahead. Accordingly, there was talk this week of asset allocation helping to prop up stock prices.
As noted above, the tech sector paced the market's advance, but another winning standout of note was the brokerage industry, which rallied after a federal judge dismissed class action claims against Merrill Lynch that sought restitution for misleading research. By and large, there weren't many notable laggards, but the utility, auto, chemical, oil & gas exploration, airline, and apparel industry groups underperformed on a relative basis.
For added thoughts on next week's action, be sure to read our Looking Ahead Story Stock. In the meantime, bear in mind that Briefing.com still believes the short-term outlook remains mixed as the market is anxiously awaiting some validation that the scope of the rally from the March lows was warranted. That will - or won't - happen when companies check in with their Q2 results, and more importantly, with their guidance for Q3 and the remainder of the year. Alcoa (AA) gets the earnings reporting period rolling next week when it reports its June quarter results before the open on Tuesday.-- Patrick J. O'Hare, Briefing.com
YTD chart of major stock indexes
Index Started Week Ended Week Change % Change YTD
DJIA 8989.05 9070.21 81.16 0.9 % 8.7 %
Nasdaq 1625.28 1663.46 38.18 2.3 % 24.6 %
S&P 500 976.22 985.70 9.48 1.0 % 12.1 %
Russell 2000 448.75 456.35 7.60 1.7 % 19.1 %
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