Weekly Chart Review

Strong data, weak markets...

Friday’s economic releases included two of the more important monthly data releases: Non-Farm Payrolls & the Unemployment Rate.

The Non-Farm Payrolls report (aka the “jobs report”) measures the change in the number of people employed during the previous month, excluding the farming industry.

Generally speaking, if more people are employed from one month to the next, that is a net positive for the overall economy. The opposite is also true.

The Non-Farm Payrolls report came in at +216,000 vs. expectations of +170,000. This was an increase from +173,000 the previous month.

The Unemployment Rate is as you would probably expect, the percentage of people that are currently unemployed relative to the total workforce. There are some nuances with how this figure is calculated but those are not pertinent to our discussion today.

Generally speaking, the lower the Unemployment Rate, the better it is for the economy. The opposite is also true.

The Unemployment Report came in at 3.7% vs. expectations of 3.8%. This was the same level (3.7%) as the previous month.

All else being equal, these were solid numbers and indicative of an economy that is performing quite well.

Mission Accomplished?

US Treasury Secretary Janet Yellen made the following remark on Friday after the jobs report:

“What we’re seeing now I think we can describe as a soft landing…”

Ironically, on October 30, 2007, Janet Yellen, who was the President of the Federal Reserve of San Francisco at that time, made the following remark:

“I think the most likely outcome is that the economy will move forward toward a soft landing…”

Even more ironically, the National Bureau of Economic Research (Note: this is the group that determines when recessions begin/end in the United States) would later come out and make the following statement:

“The committee determined that a peak in economic activity occurred in the US economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession.”

So within one month of Janet Yellen’s “soft landing” comments in 2007, the US economy entered a recession. Worth pondering.

Strong data…So how did equities perform last week?

Despite the “better than expected” economic numbers, the S&P 500 was only able to eke out a gain of 0.18% on Friday and was down -1.55% for the week.

Here is a snapshot of the US equities that we track.

Note how many have flipped from “Bullish” to “Bearish” on the Daily trend model (these have been denoted by a yellow border around the cell) and note their “1 Week” performance metrics.

The goal from here should be to discern whether or not this was simply a one-week event or if this is the beginning of something bigger.

Further, we should take note of the outliers on a relative basis. Two that jump out immediately are the performance of the Utilities and Health Care sectors.

Utilities, Health Care, and Consumer Staples are considered the “defensive” sectors and tend to outperform when the more growth-oriented sectors are underperforming and/or when investors begin to get concerned about the potential for equities to outperform over the short-to-medium term.

Let’s dive deeper and see if the charts can give us any clues as to where the market may be heading next.

We’ll start by looking at a daily chart for the S&P 500.