The S&P500 eased back just a bit last week. The large cap index fell just over one percent. Trading volume was very light, but that had more to do with the Labor Day holiday than anything else. And in line with a market that declines in price, volatility inched upward—the VIX index closed at its highest levels since mid-August.
On the weekly charts, last week’s one percent decline is barely even visible. So there is virtually no technical damage to speak of on the weekly charts. On the daily charts, the pullback is more pronounced, and as expected, it occurred after prices had reached extremely overbought levels. Going forward, a decline to the 50 day moving average would not be surprising.
All that said, the technicals are still bullish in the longer term, using a weekly or even monthly analysis.
The big economic story of the week was the August payrolls report. While the total number of jobs created beat expectations by a small amount, the headline unemployment rate disappointed—instead of dropping to 3.8%, it came in at 3.9%. Average hourly earnings also beat expectations; they came in at 2.9% on a year-over-year basis. The problem is that headline consumer price inflation last month was also 2.9% on an annualized basis. That means that REAL wage growth is a disappointing zero (2.9% – 2.9% = 0%).
Finally, our Simple Rule is still bullish. With the latest unemployment rate now reported, our system is telling investors to remain long the S&P500 index. We have yet to see the required breakdown of US economic growth needed to change this bullish outcome to a cautionary one. And while we’re not very far away from triggering several of these key economic alarms, for now the alarms are not yet ringing.