Stocks headed higher, despite a downbeat non-farm payrolls report, as short-sellers got squeezed off their positions, triggering a rally.
Stocks climbed higher on Friday, despite a disappointing January non-farm payrolls report from the Bureau of Labor Statistics. The BLS reported that only 113,000 non-farm payroll jobs were added in January, falling pathetically short of economists’ estimates that 180,000 new jobs were added. The decline in the unemployment rate from 6.7 percent to the October 2008 level of 6.6 percent had some “feel good” appeal, especially since the decline coincided with an increase in the labor force participation rate, which rose to 63.0 percent from December’s 62.8 percent. The construction and manufacturing industries saw significant job increases, providing another ray of optimism. Beyond that, December’s dismal headline number of only 75,000 new jobs made January’s total seem exciting.
Momentum from Thursday’s rally combined with tight stops set by short-sellers, who were less bold with the weekend approaching, triggering an enormous load of “buy” orders, once those stops were hit. As a result, the momentum increased and the week concluded on a positive note.
The Dow Jones Industrial Average (DIA) picked up 165 points to finish Friday’s trading session at 15,794 for a 1.06 percent advance. The S&P 500 (SPY) jumped 1.33 percent to close at 1,797.
The Nasdaq 100 (QQQ) vaulted 1.84 percent to finish at 3,561, crossing above its 50-day moving average, which is currently 3,526. The Russell 2000 (IWM) climbed 1.14 percent to end the day at 1,116.
In other major markets, oil (USO) soared 2.12 percent to close at $35.64.
On London’s ICE Futures Europe Exchange, March futures for Brent crude oil climbed $2.23 (2.09 percent) to $108.83/bbl. (BNO).
April gold futures advanced $9.60 (0.76 percent) to $1,266.80 per ounce (GLD).
The transportation sector regained some altitude on Friday, as the Dow Jones Transportation Average climbed 0.84 percent to 7,242, while falling short of its 50-day moving average of 7,272 (IYT).
In Japan, the exchange rate for the yen continued to be the dominant factor in stock market activity. Japanese stocks soared as the exchange rate for the yen weakened to 102.21 per dollar during the last half-hour of Friday’s trading session in Tokyo. A weaker yen causes Japanese exports to be more competitively priced in foreign markets (FXY). The Nikkei 225 Stock Average jumped 2.17 percent to 14,462 (EWJ).
In mainland China, the stock markets reopened for the first trading session since January 30, following the week-long Lunar New Year holiday. The Shanghai Composite Index recovered from a decline at the opening bell to end the session with a 0.56 percent advance to 2,044 (FXI). Unconfirmed reports (i.e. rumors) that Macau casinos saw revenue soar 19 percent higher than expected during the Lunar New Year week sent Hong Kong’s Hang Seng Index exactly one percent higher to 21,636 (EWH).
In Europe, the Euro STOXX 50 Index skyrocketed from the breakeven level just after the release of America’s disappointing non-farm payrolls report. What were they thinking? Were European investors under the impression that the Federal Reserve would reverse its decision to taper another $10 billion from its monthly bond purchases? The Euro STOXX 50 Index soared 0.92 percent to 3,038 – falling short of its 50-day moving average of 3,048. Its Relative Strength Index is 48.75 (FEZ).
Technical indicators revealed that the S&P 500 remained below its 50-day moving average of 1,809 despite jumping 1.33 percent to finish Friday’s trading session at 1,797. Its Relative Strength Index (RSI) climbed from 42.87 to 49.69. Friday’s advance broke the neckline of the bearish head-and-shoulders pattern on the S&P chart. The MACD took another step in its climb out of the basement, suggesting that the S&P could continue its advance during the immediate future.
On Friday, all sectors were solidly in positive territory. The utilities sector was the laggard, with a 0.54 percent advance.
Consumer Discretionary (XLY): +1.23%
Technology: (XLK): +1.36%
Industrials (XLI): +1.73%
Materials: (XLB): +1.38%
Energy (XLE): +1.08%
Financials: (XLF): +1.24%
Utilities (XLU): +0.54%
Health Care: (XLV): +1.71%
Consumer Staples (XLP): +0.94%
Bottom line: Many commentators were shocked to see the major stock indices jump higher than one percent on Friday, despite the disappointing January non-farm payrolls report. Apparently, the drop in the unemployment rate to 6.6 percent was good-enough news to ignite those “animal spirits” which used to seem like figments of Ben Bernanke’s imagination.
Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector's Disclaimer, Terms of Use, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.