It certainly was an interesting week for most of the broader indexes. Even though the S&P 500 and its tracking exchange traded fund, SPY, ended the week with a modest gain, the strong sell-off on Monday made for a volatile week.
I had a mixed call in my outlook for last week, suggesting the rally was likely to continue in my last article that provided my overview of what I thought would happen during the previous week. Still, while the sell-off on Monday was brutal, the steady rally in the S&P 500 and most of the broader indexes from Monday to Friday was impressive.
With the key leadership sectors, the financials and large cap tech, looking strong despite continued bad news coming out of the eurozone, the market still looks ready to move higher. While the recent stock performance of the large U.S. banks has been poor, and the Spanish debt news that broke recently did cause a sell-off in the financials, the earnings reports from the U.S. banks were still strong.
Indeed, given the recent positive earnings reports from Apple, JPMorgan Chase (JPM), and Citibank (C), the fundamentals of the financials and large cap tech remain strong. The breakout of MasterCard and Visa to new highs also suggests that the U.S. consumer may be in stronger shape than the recent jobs reports would indicate.
While market bears will point to the relative weakness of the financials to the overall market and the broader indexes like the S&P 500, the recent earnings reports of Citigroup and JPMorgan showed a nearly 7% expansion in credit to consumers, and a nearly 9% growth in debit card transactions. The major U.S. banks also continue to comfortably hold their key support levels despite the recently negative news on continued European credit issues in the PIIGS.
Additionally, with the notable exception of Baidu (BIDU) a leader in the Chinese internet sector, Chinese equities also performed well after selling-off early in the week.
As I've discussed in previous articles, I think that the recent positive economic data coming out of China has given the market a new and important catalyst for rallying since Asia has been spot of major economic weakness so far this year. China's trade report and housing data has been much stronger of late, and shipping companies have begun to become increasingly bullish on rates moving up in their industry going into the back-half of the year for the first time in a while.
The recent positive economic news coming out of Asia has also helped provide support for oil prices, which topped out around $110 a barrel during early April after bearish inventory numbers were released. Oil prices recently held their support levels at around $102.50 a barrel, and recent inventory numbers have been more bullish for prices.
To conclude, while if the recent Challenger and other bad job reports that have come out over the last several months are leading indicators, the jobs report this Friday will likely be disappointing as well. With recent data from regional purchasing managers in places like Chicago having already disappointed as well, market expectations for the report Friday are likely fairly low as well.