Last week, the S&P500 soared over 3.5%, with the bulk of the gains coming on Friday when it rose almost 2% on that day alone. Volume, unfortunately, did not jump along with the price. That means that last week’s increase could still be explained in part by short-covering and the steady flow of corporate buybacks, buybacks that don’t vary too much from week to week. Volatility, however, did confirm the price action—the S&P VIX fell back to the low teens. And while this is a huge retreat from the panic highs over a month ago, it’s still not back to the complacent lows that dominated much of 2017. In other words, traders remain somewhat concerned about downside risk.
In US macro news, the dominant story was the strong payrolls report on Friday; this report also helped push the stock market indices higher. But as more jobs were created, the unemployment rate did creep higher and average hourly earnings disappointed.
Also disappointing were factory orders, productivity gains, consumer credit and initial jobless claims.
So despite the strong headline in payrolls, there are many other signals suggesting that the US economy continues to limp along with only tepid growth at best.
Finally, the technical picture remains mostly unchanged from last week. If anything, last week’s gains validated and strengthened the conclusion of our “Simple Rule”, namely that investors should remain bullish, and therefore net long the S&P500.