Weekly Market Outlook – May 9th, 2016

The market may have finished last week on a bullish note, and started the week on a bullish note. The middle of the week, however, was rough enough on stocks to leave the S&P 500 (SPX) (SPY) down 0.4% for the five-day span.

On the other hand, when push came to shove at a critical line in the sand, the bulls were doing more pushing and shoving than the bears were.  Friday’s gain – small as it may have been – happened in such a way and in such a place that there’s a decent chance the market may be headed into a decent May rally after all.

We’ll show you how Friday’s small victory may not have been so small after we run down last week’s and this week’s major economic headlines.

Economic Data

Last week’s economic dance card was plenty full, but there’s little doubt as to the highlight… Friday’s employment report for April. It wasn’t great.  Rather than the 207,000 new jobs economists thought we’d add, we only ended up adding 160,000. That’s the lowest reading in seven months, extending a downtrend. The unemployment rate stood at 5.0% even though the number of people with jobs actually slumped a bit. How so? The number of people who consider themselves in the labor force (working or not) also contracted.

Job Growth, Unemployment Rate Chart

Source: Thomson Reuters

Employed, Unemployed, Not in Labor Force Charts

Source: Thomson Reuters

That being said, jobs weren’t the only economic news worth a closer look from last week. We also heard about both ISM Indices – manufacturing and service. The ISM Index, which measures manufacturing activity, fell from 51.8 to 50.8, rolling in below expectations. Any reading above 50.0 technically indicates growth, but the index has been in a ” just barely” position for a while. As for the ISM Services Index, it grew from 54.5 to 55.7, underscoring the economy’s ongoing transition from a manufacturing-based one to a service-based one.

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