Stocks rallied Friday following a stronger-than-expected May jobs report, enough to boost most equities into the green for the week.
NASDAQ led the way with a 1.5% gain Friday to finish the week 1.6% higher, while the S&P 500 rose 1.1% to end the week up 0.5%. The Dow rose 0.9% Friday but finished down 0.5% for the week. Nonfarm payrolls increased by 223,000 last month, 33,000 more than the consensus forecast and well ahead of April’s downwardly revised total of 159,000. The unemployment rate fell to 3.8%, its lowest level since 1969. Average hourly earnings rose 0.3% from the previous month and 2.7% compared to a year earlier. Oil prices dropped sharply for the second straight week, falling more than 3%, with about two-thirds of that decline coming on Friday. U.S. crude ended the week at less than $66 a barrel, down more than 9% over the past two weeks.
Most of the market’s focus was on Italy, where volatility in stock prices and bond yields reached panic levels before calming down later in the week. Italy’s MIB equity index ended the week with a modest 1.3% loss after plunging as much as 7% early in the week after President Sergio Mattarella refused to allow two antiestablishment parties, the winners of the most recent election, to form a coalition government. Italian government bond yields soared, with the 10-year bond climbing to as high as 3.29% before ending the week at 2.72%. The two-year bond began the week at 0.30%, soared past 2.4% on Tuesday, then dropped back down to about 0.6% before ending the week at around 1.0%. The panic in Italy created a rush to safe haven bonds, pushing yields down. In the U.S., the yield on the benchmark 10-year note dropped nearly 15 basis points on Tuesday to 2.76% before ending the week at 2.90%, down three bps.
There was a heavy slate of economic reports as May came to an end, most of which were positive. First quarter GDP growth was revised slightly downward to 2.2% annualized from 2.3%, but the second quarter is looking a lot better. The latest GDP Now forecast from the Atlanta Fed is calling for 4.8% growth in Q2, while the Federal Reserve’s Beige Book said the economy “expanded moderately” in late April and early May while “outlooks for near term growth were generally upbeat.” Personal consumption expenditures jumped a better-than-expected 0.6% in April, outpacing the 0.3% gain in personal incomes. But inflation remained close to the Fed’s target rate, as the headline PCE index rose 2.0% year-on-year while the core rate, excluding food and energy, rose 1.8%. The Conference Board’s consumer confidence index rebounded in May to 128.0 from April’s downwardly revised 125.6 reading. “Overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term,” the firm said.
But the housing market remained under pressure as prices continued to rise. The National Association of Realtors’ pending homes sales index fell 1.3% in April after rising 0.6% in March, when prices rose 6.5% compared to a year earlier, according to the S&P CoreLogic Case-Shiller national home price index. “The continuing run-up in home prices above the pace of income growth is simply not sustainable,” said NAR chief economist Lawrence Yun, noting the 48% rise in home prices over the past six years compared to the 14% increase in incomes.
Reports/dates/facts/links worth paying attention to over the next week:
1. June 4: Factory orders for April.
2. June 5: Institute for Supply Management non-manufacturing index for May.
3. June 7: Weekly unemployment claims; consumer credit for April.