US Stocks Tread Water—Two Weeks in a Row

Amazingly, the S&P500 finished another consecutive week with almost no change in price. That doesn’t mean that during the week there wasn’t any significant movement in price. There was. But it does mean that when the closing bell rang on Friday afternoon, the index finished the week just about where it started. Volatility rose—when prices fell—but then fell—when prices rose….to end the week also with little net change. Volume rose a bit, but that was mainly due to the fact that last week’s trading days returned to normal when compared to the prior week’s holiday-shortened schedule.

The volume of US economic reports also returned back to normal.  The week began with a very weak Chicago PMI result; instead of rising as expected, it fell by a lot—most meaningfully, below the important 50 level. Pending home sales also missed badly. Then, the ISM manufacturing index registered a disastrous sub-50 reading, also far below expectations. And to add insult to injury, the ISM services index also badly missed consensus estimates. On the positive side, factory orders beat expectations, but only barely. And the big number of the week—payrolls—was slightly better than expected:  more new jobs were created than economists predicted. The problem though is that most of these jobs, such as bartenders, waitstaff, and landscapers, pay ultra-low wages and usually don’t offer benefits. At the same time, the jobs that are lost are more often traditional high-paying jobs that offered healthy benefits.

Finally, as already touched on, the S&P500 continued to give no clear signal over the past five days. Early in the week, rose. Then midweek, they fell fairly hard, but by Friday, they rallied so vigorously that the index finished the week pretty much unchanged. This means, we’ll need another week or two, with some clear direction, to be able to conclude that this market is header up and poised to set fresh all-time highs, or on the other hand, it’s going to finally break down and true to it’s year-long distribution pattern, finally sell off and stay down for a while.

Once again, the next week or two will  be telling. Unless of course, the index finishes unchanged again!

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