S&P 500; US Indexes Fundamental Daily Forecast- Position-Squaring Ahead of Earnings Season

The major U.S. stock indexes closed mixed on Friday as investors digested the latest data on the U.S. labor market. The price action suggests the market may have priced in the report before it was released.

In the cash market, the benchmark S&P 500 Index finished at 2549.33, down 2.74 or -0.11%. The blue chip Dow Jones Industrial Average settled at 22773.67, down 1.72 or -0.01% and the tech-based NASDAQ-100 closed at 6589.85, up 4.49 or +0.07%.

The lower closes put an end to a couple of winning streaks. The Dow Jones snapped a seven-day winning streak. The S&P 500 Index snapped an eight-day winning streak, its longest in four years, and also ended a streak of six straight record closes, the longest such streak since 1997.

Earlier in the week, the S&P 500 posted its sixth straight all-time closing high on Thursday. The Dow and NASDAQ Composite also hit record highs.

Investors primarily reacted to the U.S. Non-Farm Payrolls report. The report was confusing to some because the data was expected to be skewed due to distortions from Hurricanes Harvey and Irma. Some analysts said “it looks sloppy from the top, but there’s more good news than bad.”

The government said the U.S. lost 33,000 jobs in September due in large part to two major hurricanes hitting the Texas Gulf Coast area and Florida. September’s decline was the first time the U.S. labor market contracted since 2010. Traders were looking for a gain of 90,000 jobs.

Although the headline number was weak, average hourly earnings rose more than expected. Monthly, it rose 0.5%, beating the 0.3% forecast. The previous month was up 0.2%. Annually, it rose 2.9 percent. Hourly earnings are closely watched by investors looking for indications on inflation. The unemployment rate also fell to a 16-year low of 4.2 percent.

I don’t think the weakness in the NFP headline number is enough to derail the current rally. The Dow and S&P were overdue for a correction after posting record highs throughout the week. Friday’s weakness was more than likely related to position-squaring ahead of the start of earnings season which comes up shortly.

Early in the week, prices may pull back into value areas ahead of earnings season. This should set up the next buying opportunity. Low rates and inflation continue to be supportive. North Korea continues to be a wildcard.