Even though the holiday-shortened week was packed with crucial economic releases and the pandemic provided plenty of catalysts, volatility still took a nosedive on Wall Street. The strong early-week rally meant that the major indices closed their best quarter in decades on a positive note, even though the virus continued to spread quickly in the U.S. and globally. Risk assets got a boost from Pfizer’s (PFE) positive vaccine-trial results on Wednesday, while the week ended with a job market bonanza on Thursday. The government jobs report and the non-farm payrolls jumped 4.8 million, while the unemployment rate edged lower to 11.1%. Even though the number of jobless claims remains very high, the job market recovery remains on track.
One of the most bullish aspects of the jobs report was the upward revision of last month’s blowout non-farm payrolls reading. We saw the same dynamic in ADP’s report, with an even bigger revision of 7 million yesterday. Given the extraordinary circumstances, the initial reports, which often use early approximations, are less reliable, and the revised numbers certainly reflect the real trends better. Next month’s revisions could also provide valuable information, but this week’s releases have matched the forecasts of the most optimistic analysts, which has to be a confidence boost for bulls.
It has been another very active week in geopolitics, with the Hong Kong protests, the rising tension between Israel and its neighbors, and the Russian referendum on a constitutional reform making waves. The situation in Hong Kong settled down after the hostilities on Tuesday, but on Thursday, China warned the U.K. that should it grant citizenship to people leaving Hong Kong, it “will have to face the consequences.” Back in Europe, the Russian vote was successful, so Vladimir Putin could remain in power until 2036, extending his effective rule to a whopping 37 years.
The key economic releases leaned bullish this week, even considering the mixed job market indicators. The same goes for the overseas numbers, with several crucial Asian and European measures providing positive surprises, most notably German retail sales and the Chinese services and manufacturing PMIs. The ISM manufacturing PMI, the CB consumer confidence number, and pending home sales were all much better-than-expected. Since the Case-Shiller Housing Price Index also beat the consensus estimate, the strong performance of the real estate sector was not much of a surprise. The Chicago PMI and construction spending both missed expectations, but the rebound in total vehicle sales and the drop in crude oil inventories suggests that domestic demand is picking up.
The technical picture improved again following last week’s deterioration, but the divergence between the relatively strong Nasdaq and the other large-cap benchmark is still striking. The S&P 500, the Dow, and the Nasdaq all closed the week above their 50-day moving averages, and apart from the Dow, the indices are also above their 200-day moving averages. Despite a great start to the week, small-caps failed to make meaningful technical progress, and the Russell 2000 closed the week below its 200-day moving average again. The Volatility Index (VIX) declined sharply on the first three days of the week and hit an over three-week low on Wednesday, finishing near 27 on Thursday, below the key 30 level.
Market internals were mostly in-line with the price action in the major indices, but we saw a slight bearish shift in the latter half of the week, as small-caps lost some of their relative strength. The Advance/Decline continued to follow the path of the major indices, as advancing issues outnumbered decliners by a 5-to-1 ratio on the NYSE, and by a 6-to-1 ratio on the Nasdaq. The average number of new 52-week highs was virtually unchanged on both exchanges, edging higher to 30 on the NYSE but falling to 72 on the Nasdaq. The number of new lows ticked lower in the meantime, declining to 2 on the NYSE and 5 on the Nasdaq. The percentage of stocks above their 200-day moving average bounced back, but it remained well below its recovery high, closing the week near 39%.
Short interest declined substantially this week, thanks to the broad and persistent rally on Wall Street, as the most-shorted issues performed better-than-average, especially in the first part of the week. Match Group (MTCH) had another great week, hitting new all-time highs every day, and since the stock’s short interest is still at 74%, the short squeeze could intensify. Angi Homeservices (ANGI) also hit a new recovery high, outperforming the broader market, and with its short interest being over 60% bears might be in for more pain. Rollins (ROL) hit its highest level in over three weeks, following the major indices higher, and since it sports a days-to-cover (DTC) ratio of 8, it could be ready to target its all-time high again in the coming weeks.
While one the least active periods is ahead of us, from a historical perspective, and the domestic economic calendar will also be relatively light on key economic releases. However, we could still be in for a busy week due to the pandemic. The ISM non-manufacturing PMI will be out on Monday, the IDB/TIPP sentiment number will be released on Tuesday, the weekly jobless claims report will highlight Thursday’s session, while the week will end with the Producer Price Index (PPI). The virus continues to spread quickly across the current global hot spots, and with several fragile emerging market economies being heavily impacted and the U.S. reopening being delayed, economic uncertainty remains high. That said, stocks, and the tech sector, in particular, remained resilient in the face of the negative developments, so the recovery could continue in the coming weeks. Stay tuned!
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