US stocks had a breakout week, up by 3.43% and moving up through resistance. Despite all the bad news out there, stocks continue to push higher.
Washington managed to make a deal to save the country from default. Of course, according to Bloomberg economists Anna Wong and Maeva Cousin, it will barely make a dent in the continued disastrous trajectory of US debt, estimated to rise from 97% of GDP to 130% by 2033.
Biden signed the debt deal into law on Saturday, meaning a tidal wave of US Treasuries will come to market this week. It will be interesting to see how the market handles it.
Non-farm payrolls were up by 339,000, beating the 195,000 consensus. Bianco Research said it was the 14th consecutive monthly reading in which payrolls topped economist expectations. The prior two months were revised up by almost 100,000. The labor-force participation rate was 62.6%, the same as in May and lower than the prepandemic level of 63.3%. The average workweek fell to 34.3 hours, the lowest since April 2020.
Between the strong jobs report and the debt ceiling resolution, the Dow jumped by just over 700 points on the news, the largest one-day gain since November.
US stocks fell by 0.78%, while international stocks managed an advance of 0.48%.
The US added 253,000 jobs in April, indicating that the labor market continues to be solid, despite rising rates and the banking crisis. It was the best gain since January. The unemployment rate fell to 3.4%. Wages were up by 4.4% year over year.
During the week, the Fed raised its benchmark interest rate by one-quarter point to between 5% and 5.25%. Powell indicated the Fed might pause hikes until they have a better understanding of the impact of all of the recent increases. But the strong labor report might change that calculation.
Banking continues to be an area of concern. The SPDR Regional Banking ETF, KRE, fell by 10% on the week.
A big week for stocks as US markets rallied by 3.64% and international stocks by 3.37%. Bonds were off by 0.52%.
A winning quarter wrapped up on Friday, with US markets up by 7.2% and the Nasdaq up by 17%. Bonds also rallied for the quarter, up by 3.23%, as the 10-year yield fell from 3.826% to 3.491%. The much-feared recession has yet to arrive, and the labor market is still strong. The Fed has continued to raise rates, but that did not stop a winning quarter. Estimated earnings for the quarter just ended are expected to drop by 4.6%, following a 3.2% decline in Q4. But investors seem to be looking past all of that.
For all the predictions by the “experts” that the market will turn down with all of the bad news, stocks have taken a near-term turn upwards and are back up the declining trend line.
US stocks managed a gain for the week as the S&P 500 finished up by 1.48%. Bonds also were up as yields fell slightly. The 2-year yield fell five basis points to 3.76%. The peak on the curve is about 4-5 months out at 4.8%.
The scare in banking is hurting financing. No investment-grade credit has been issued since the collapse of Silicon Valley Bank. In the high-yield market, the percentage of distressed issues yielding 10% or more compared to equivalent Treasuries’ increased to 10.6% from 7.8% seven trading days prior. Some economists estimate the hit to the economy would be the equivalent of raising rates by 1/2 point to 1.5 points. Even with that, the Fed went ahead this week and raised rates by 1/4 point.
An aggregate M-Score for almost 2,000 companies shows the probability of fraud in the group is at the highest level in 40 years. The M-Score, developed by Messod Beneish from Indiana University, worked with several co-authors to measure the aggregate score. The M-Score received prominence for spotting problems with Enron three years before its collapse. It measures if companies are getting too aggressive with their accounting and/or committing fraud. The metric often rises rapidly before a recession.
All in all, the probability is increasing that a recession is coming.
One big winner is gold; GLD is up by 9.5% year-to-date.