U.S. economic data continued to roll in, in benign fashion helping to support stock prices Friday. Both the employment report and ISM Non Manufacturing data came in at decent levels – the former more or less in line, the latter above expectations, and we continued to see the move that started Monday. The S&P 500 added 0.49% while the NASDAQ gained 0.04%. For the week, the S&P 500 jumped 4.57%, and the Nasdaq soared 4.66% - the best weekly performances since late 2011.
The U.S. employment picture continued its gradual improvement in December, adding 155,000 positions as the jobless rate held at 7.8%. Health care, which added 45,000 jobs, and services were the biggest growth areas for the month. Restaurants and bars added 38,000 positions, while construction grew by 30,000.
We are definitely now in the overbought zone.
Aside from being a good week for stocks, it was a poor weak for bonds as represented by the widely traded ETF TLT. With that said, this instrument did hold mid September lows today, and finished at the top end of its range potentially forming a bullish “hammer” candlestick. We shall see if there is any follow through next week as stocks are reaching very overbought levels and could use a pull in, which should bode well for at least a bounce in bonds.
We looked at oil earlier this week, and thus far no change there so we’ll do our weekly look at the other commodities gold and silver, along with copper. The precious metals remain in no man’s land; the action in silver is particularly surprising considering it usually runs up dramatically when the market runs up, as it is considered a “risk on” asset. But last week’s bear flag I noted has kept it in check even as it temporarily bounced upward.
Gold is – for lack of a simpler term – doing nothing.
Copper on the other hand is acting like one would expect silver to – bouncing with the market. Still not in a leadership position, or over September highs but doing ok.
I would like to point today a lot of “junky” stocks are beginning to run – these are beaten down solar stocks, dry bulk shipping stocks (both stars of 2007), and some of the worst social media type stocks. When this happens it usually marks the beginning of a euphoric stage in the market near term.
One stock that stuck out like a sore thumb today was yoga apparel maker Lululemon (LULU) which was hit with an analyst downgrade.
Sales growth in the country’s mature stores shows signs of slowing while margin pressure is a “distinct risk”, Christian Buss, based at Credit Suisse in New York, said. Buss, who defines mature stores as five years or older, cut the company’s rating to neutral, the equivalent of a hold, from outperform. He also lowered his target to $80 a share from $86. “New and winter product lines appear to have stretched outside of the company’s comfort zone,” Buss wrote in his note to clients today. Repricing, broader discounts, and higher markdown levels are higher than “historically seen” and add risk to the company’s ability to drive sales, he wrote.