To this point, the S&P 500 has had only one losing week so far in 2019 -- and it was barely a losing week with a decline of just 0.2%. That realization should be everyone's starting point when contemplating the swirl of headlines this week that have reportedly contributed to what is shaping up to be the second losing week in 2019.
Entering today's trading, the S&P 500 is down 1.95% for the week. Currently, the S&P futures are down 21 points and are trading 1.0% below fair value. The Nasdaq 100 futures are down 64 points and the Dow Jones Industrial Average futures are down 191 points, leaving them 1.4% and 0.9% below fair value, respectively.
The lead headline should be this: the market is overextended and due for a period of consolidation.
After that, we can include other elements that have some legitimacy for this week's sell-off -- elements like an awareness that global growth is slowing and that the market got ahead of itself pricing in economic prospects; elements like an awareness that a trade deal with China might fall short of expectations for closure on the nettlesome issue; elements like an awareness that the S&P 500 has been unable to maintain a posture above 2800 and has fallen back below its 200-day moving average along with the Nasdaq Composite, Russell 2000, and Dow Jones Transportation Average.
These elements are in the mix again today.
China filled the bucket of global growth concerns in reporting a much weaker than expected 20.7% year-year decline in February exports. U.S. Ambassador to China, Terry Branstad, filled the bucket of trade deal concerns, telling The Wall Street Journal that a date has not yet been set for a summit because neither side feels an agreement is imminent. Since the S&P 500, Nasdaq Composite, Russell 2000, and Dow Jones Transportation Average are below their 200-day moving averages, let's just say they are still soaking in their own bucket of cold water.
Right on cue the February Employment Situation Report muddied what had been a pretty clear labor market picture, giving the market another bucket of concern.
The headline that will jump out at everyone is that nonfarm payrolls increased by only 20,000 in February, well below expectations and far off recent readings running above 200,000. Average hourly earnings, meanwhile, increased 0.4%, which left the year-over-year wage figure up 3.4%. That's good news, as it is a positive underpinning for consumer spending.
The key takeaway from the report is that the weak payrolls figure will drive thoughts of either there being a shortage of skilled labor that could drive up wages or that it is a sign of a softening job market. In other words, the key takeaway is that it is going to create uncertainty that is going to hang over the market.
Other notable headlines from the Employment Situation Report are as follows:
- February nonfarm payrolls increased by 20,000 (Briefing.com consensus 173,000). Over the past three months, job gains have averaged 186,000 per month
- January nonfarm payrolls revised to 311,000 from 304,000
- December nonfarm payrolls revised to 227,000 from 206,000
- February private sector payrolls increased by 25,000 (Briefing.com consensus 165,000)
- January private sector payrolls revised to 308,000 from 296,000
- December private sector payrolls revised to 224,000 from 206,000
- February unemployment rate was 3.8% (Briefing.com consensus 3.8%) versus 4.0% in January
- Persons unemployed for 27 weeks or more accounted for 20.4% of the unemployed versus 19.3% in January
- The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 7.3% versus 8.1% in January
- February average hourly earnings were up 0.4% (Briefing.com consensus +0.3%), after increasing 0.1% in January
- Over the last 12 months, average hourly earnings have risen 3.4%, versus 3.2% for the 12 months ending in January
- The average workweek in February was 34.4 hours (Briefing.com consensus 34.5), versus 34.5 hours in January
- Manufacturing workweek declined 0.1 hour to 40.7 hours
- Factory overtime was unchanged at 3.5 hours
- The labor force participation rate held steady at 63.2% in February
Separately, the Housing Starts and Building Permits report for January delivered positive surprises on both fronts.
Starts increased 18.6% month-over-month to a seasonally adjusted annual rate of 1.230 million units (Briefing.com consensus 1.180 million) and permits rose 1.4% month-over-month to 1.345 million (Briefing.com consensus 1.280 million).
The key takeaway from the report, however, is that starts were down 7.8% year-over-year and permits were down 1.5% year-over-year. Accordingly, the strong January figures belies an otherwise torpid new residential construction market.