Weekly Market Roundup
Friday's nonfarm payrolls report delivered a jolt. The economy added 172,000 jobs in May, nearly double the 88,000 consensus estimate, with prior months revised higher as well. The print immediately repriced the Fed toward at least a 25 basis point rate hike by year-end, with the next move now projected for October. The S&P 500, which had been tracking its 10th consecutive weekly gain, a run that would have been the longest since 1985, was knocked -2.55% on the week. The Nasdaq fell -4.65%, with rate-sensitive and high-growth names bearing the sharpest losses. The broader bond market followed suit, with the Bloomberg U.S. Aggregate falling -0.54% as yields moved higher across the curve.
The selloff was not uniform. The Dow Jones finished the week +0.50%, its more defensive composition providing shelter. The pain concentrated in exactly the names that had run the hardest, high-beta, secular growth positions that had spent the week at the top of their risk ranges got sold straight to the bottom. Solar (TAN) fell -13.4%, Computer Memory (DRAM) -11.7%, Robotics (ROBO) -6.0%, and Telecom (XTL) -5.1%. The dynamic is a clean illustration of a simple but easy-to-forget market reality: things tend to go down a lot after they have gone up a lot.
Volatility made itself known. The VIX surged on Friday, closing above 20, what Hedgeye refers to as the Chop Bucket. We will be watching closely over the coming days to see if it remains elevated or retreats back toward the lower-volatility range where it has spent most of the year.
Wednesday's CPI is the week's most important release. Oil moved back to a positive trend last week, and historically that feeds into inflation readings, suggesting we could see a continued uptick in CPI. Tuesday brings ADP employment and the trade balance for additional labor and activity context. Thursday delivers PPI and initial jobless claims, and the week closes Friday with the University of Michigan consumer sentiment and inflation expectations survey.
Whether the VIX holds above 20 or retreats over the coming sessions will be an important secondary signal, telling us how the market is processing Friday's jobs shock heading into the heart of the data week.
We remain constructively bullish, but are aware of the potential for earnings headwinds as we move into July. Friday's session was a reminder that markets rewarding patience can reverse quickly when data surprises arrive. Wednesday's CPI will be the next major signpost, particularly with oil back on a positive trend. We will continue to monitor the VIX closely as a gauge of whether last week's volatility represents a brief interruption or a more sustained shift in market character.
If you have any questions about the above, please reach out to us to set up a one-to-one meeting so we can review your situation.
Sincerely,
President
SBC Investment Management
P: (602) 641-5996 · M: (319) 520-2033 · E: bandrus@sbcinvestmentmanagement.com
Investment Analyst, Junior Portfolio Manager
SBC Investment Management
P: (435) 775-2950 · M: (435) 590-8317 · E: jrehkop@sbcinvestmentmanagement.com