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Proprietary Trading Weekly Market Recap For Friday, August 1, 2014

Mixed Data Generates Increasing Volatility for Stocks

The mixed bag of data released in the US released increased volatility creating choppy market conditions. Stronger than expected GDP and the Employment costs index, gave investors confidence that the Fed could raise interest rates sooner than expected. Stocks tumbled on Thursday, pushing volatility higher, ahead of the all-important jobs report Friday.

The US released a deluge of data on Friday, including non-farm payrolls, the unemployment rate, ISM manufacturing, construction spending and consumer confidence. The payroll report, which is the most watch report of the month, was somewhat disappointing despite notching up a 200k+ number for the 7th consecutive month.

U.S. nonfarm payrolls rose 209k in July from a revised 298k in June and 229k in May for a net 15k increase to prior reports. Expectations were for a 230K increase in non-farm jobs. The unemployment rate rose to 6.2% versus 6.1% previously, as the labor force rose 329k and household employment increased 131k. Expectations were for an unchanged rate at 6%. Average hourly earnings rose were flat after gains of 0.2% in May and June. The workweek was steady at 34.5.

Private payrolls rose 198k, including a 58k gain in the goods producing sector, while construction employment was up 22k, with manufacturing jobs rising 28k. Jobs in the service sector increased 140k, with the government adding 11k, while business services added 47k.

One of the bright spots of the data releases Friday was the U.S. ISM which jumped up to 57.1 in July after slipping 0.1 point to 55.3 in June. The index resumed its rise that had been in place from February through May as manufacturing recovered from exaggerated weakness to start the year. This is the highest reading since April 2011 and compares to the 59.3 cycle high from February 2011. The employment index surged to 58.2 versus 52.8. New orders rose to 63.4from 58.9. New export orders slipped to 53.0 from 54.5. Prices paid increased to 59.5 from 58.0. Data are better than expected.

U.S. construction spending plunged 1.8% in June after a revised 0.8% May gain, with the 0.8% April jump boosted to 1.4%. Residential construction spending dipped 0.2% following a 1.0% May drop. Nonresidential spending declined 2.8% after gains of nearly 2.0% in April and May. Private construction outlays fell 1.0% following a 0.4% May gain. Public construction spending fell 4.0% following a 1.6% May gain and a 2.4% April jump.

Sentiment on the other hand slipped. The July Michigan sentiment declined to 81.8 from 82.5 following Friday's increase in the July employment rate. Michigan sentiment remains below the 85.1 cycle-high from July of 2013. The average size of the monthly boost has dissipated to 0.7 this year from a larger 1.8 average in 2013. Michigan sentiment has enjoyed a 2014 lift from rising stock prices and home price gains, though confidence faces a headwind from limited credit availability, mortgage rate increases, disruptions from Obamacare, and a deteriorating geopolitical backdrop.

While the S&P 500 index dropped 2.69% for the implied volatility as reflected by the VIX volatility index soared 34.2%, putting investors on notice that the calm might be over.