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From Briefing.com: Weekly Recap - Week ending 03-Jun-16

The stock market appeared to be on track for its third consecutive weekly advance going into Friday, but a disappointing Employment Situation report for May invited some selling ahead of the weekend. The S&P 500 ended the week unchanged while the Nasdaq Composite (+0.2%) eked out a slim gain.

The trading week was underscored by range-bound action near the highest levels of the year. Investors received some economic data, which included in-line April Personal Income (+0.4%; Briefing.com consensus 0.4%), in-line core PCE Prices (+0.2%; Briefing.com consensus 0.2%), and a hotter than expected Personal Income report for April (+1.0%; Briefing.com consensus 0.7%). However, it was Friday's release of the Employment Situation report for May that caught the attention of most participants.

According to the report, only 38,000 nonfarm payrolls were added in May (Briefing.com consensus 155,000) while private sector payroll growth (+25,000; Briefing.com consensus 160,000) was also well short of expectations. Interestingly, the unemployment rate fell to 4.7% from 5.0% (Briefing.com consensus 4.9%), but that was fueled by a decline in labor force participation rate (to 62.6% from 62.8%).

The disappointment on the jobs front was met with a swift adjustment to rate hike expectations as the probability of a June hike, expressed by the fed funds futures market, dropped to 6.0% from 30.0% a week ago. Expectations for July move also took a hit, falling to 35.0% from 62.0% one week ago.
Index Started Week Ended Week Change % Change YTD %
DJIA 17873.22 17807.13 -66.09 -0.4 2.2
Nasdaq 4933.50 4942.52 9.02 0.2 -1.3
S&P 500 2099.06 2099.13 0.07 0.0 2.7
Russell 2000 1150.45 1163.36 12.91 1.1 2.4

4:17 pm Closing Market Summary: Equities Slip After Jobs Report (:WRAPX) :

The stock market ended a flat week on a similar note as investors digested a below-consensus reading of the Employment Situation Report for May. The S&P 500 lost 0.3%, ending its week unchanged. Today's trade included weakening in the dollar, a downswing in oil, a rally in the Treasury complex, and the underperformance of the heavyweight financial (-1.4%), consumer discretionary (-0.6%), and technology (-0.4%) sectors. The Nasdaq Composite (-0.6%) finished behind both the benchmark index (-0.3%) and the Dow Jones Industrial Average (-0.2%).

Today's session began on a lower note as a disappointing Employment Situation Report for May altered rate hike expectations. The headline nonfarm payrolls reading (38K; Briefing.com consensus 155K) surprised to the downside while the remainder of the report provided little reprieve. Meanwhile, a larger-than-expected contraction in the ISM Services Index for May (52.9; Briefing.com consensus 55.4) also disappointed investors.

The negative datapoints altered participants' views of potential rate hikes in the coming months. Currently, the fed funds futures market reflects the odds of a rate hike at the June and July meeting of the FOMC at a respective 6.0% and 33.0%. This compares to yesterday's readings of 21.0% and 58.0%, respectively. As a result, the economically-sensitive financial sector (-1.4%) finished at the bottom of the daily and weekly leaderboard.

The major averages notched a session low in the first hour of trading before equities steadily marched off their worst levels of the day. Four sectors ended in the green as countercyclical utilities (+1.7%) led materials (+0.8%), telecom services (+0.6%), and consumer staples (+0.6%). Conversely, the heavyweight financial (-1.4%) consumer discretionary (-0.6%), and technology (-0.4%) sectors rounded out the board.

The financial space (-1.4%) displayed broad-based weakness as money center banks, investment brokerages, and life insurance names experienced sharper losses. In the group, Citigroup (C 45.39, -1.58) and Bank of America (BAC 14.42, -0.52) declined by 3.4% and 3.5%, respectively. Meanwhile, Dow component Goldman Sachs (GS 155.67, -3.61) finished at the bottom of the price-weighted index.

In the consumer discretionary space (-0.6%), media names underperformed with Time Warner (TWX 75.84, -0.91) and CBS (CBS 54.39, -1.01) losing a respective 1.2% and 1.8%. Elsewhere, the SPDR S&P Retail ETF (XRT 42.65, -0.30) ticked down 0.7% after gaining 1.2% yesterday. On the flipside, Gap (GPS 19.09, +0.76) jumped 4.2% after reporting above-consensus same-store sales for May.

Heavily-weighted Alphabet (GOOGL 735.86, -8.41) and Microsoft (MSFT 51.79, -0.69) underperformed in the technology space (-0.4%), declining 1.2% apiece. Separately, the high-beta chipmakers outperformed, evidenced by the 0.3% gain in the PHLX Semiconductor Index. Component Broadcom (AVGO 162.56, +7.65) outperformed, gaining 4.9% after topping analysts' estimates for the quarter.

Biotechnology displayed relative weakness in the health care space (-0.6%) as the iShares Nasdaq Biotechnology ETF (IBB 281.77, -4.51) trimmed its weekly gain to 2.0%.

The U.S. Dollar Index (93.93, -1.64) ended on its low as participants trimmed their exposure to a potential policy divergence trade. The euro lost 1.9% against the dollar (1.1364) while the dollar/yen pair ended lower by 2.1% (106.56).

The Treasury complex finished near its best level of the day as the yield on the 10-yr note settled at 1.70% (-10 bps).

Today's participation was above the recent average with more than 888 million shares changing hands at the NYSE floor.

Today's economic data included the Employment Situation Report for May, the April Trade Balance, Factory Orders for April, and ISM Services for May:

The May Employment Situation report will give a lot of people a lot to think about. That includes members of the FOMC, which will now most likely be thinking it is best to hold off on a rate hike at the June meeting.
Nonfarm payrolls increased by 38,000 (Briefing.com consensus 155,000). Over the past three months, job gains have averaged 116,000
April nonfarm payrolls revised to 123,000 from 160,000
March nonfarm payrolls revised to 186,000 from 208,000
Private sector payrolls increased by 25,000 (Briefing.com consensus 160,000)
April private sector payrolls revised to 130,000 from 171,000
March private sector payrolls revised to 167,000 from 184,000
Unemployment rate was 4.7% (Briefing.com consensus 4.9%) versus 5.0% in April
The U6 unemployment rate, which accounts for the total unemployed plus persons marginally attached to the labor force and the underemployed, was unchanged at 9.7%
Persons unemployed for 27 weeks or more accounted for 25.1% of the unemployed versus 25.7% in April
April average hourly earnings were up 0.2% (Briefing.com consensus 0.2%) after being up 0.4% in April
Over the last 12 months, average hourly earnings have risen 2.5%
Aggregate earnings were up 0.2% on top of a downwardly revised 0.4% increase (from 0.8%) for April
The average workweek was 34.4 hours (Briefing.com consensus 34.5) versus 34.4 hours in April
May manufacturing workweek was up 0.1 to 40.8 hours
Factory overtime was unchanged at 3.2 hours
The labor force participation rate was 62.6% versus 62.8% in April
The drop in the unemployment rate to 4.7% certainly stands out, and while it will be a positive talking point for the White House, it also comes with some hot air considering the participation rate fell to 62.6% in May
This follows a reading of 62.8% in April.
Additionally, it might also be touted that the number of unemployed in the civilian labor force declined by 484,000 in May.
The offset to that positive talking point is that the number of employed persons working part-time for economic reasons increased by 468,000 in May.
Average hourly earnings growth was up 2.5% year-over-year in May. That is a positive indication, yet it will get drowned out by the weak payroll growth.
The trade deficit widened to $37.4 billion in April (Briefing.com consensus $41.6 billion) from an upwardly revised $35.5 billion (from -$40.4 billion) in March.
Exports and imports of goods and services for all months through March 2016 were revised with this report to incorporate annual revisions to the goods and services series; hence, the notable deviation from the consensus estimate and the notable revision for the March report.
The widening in the deficit between April and March was the result of imports increasing by $4.5 billion over March to $220.2 billion and exports increasing by only $2.6 billion to $182.8 billion.
It is encouraging to see a pickup in both imports and exports; moreover, the demand pickup for goods was broad-based in both instances.
The real goods deficit increased $1.5 billion to $57.6 billion, yet this will still compute favorably in Q2 GDP forecasts since it is below the first quarter average of $60.5 billion.
New orders for manufactured goods increased 1.9% in April (Briefing.com consensus +1.6%) on top of an upwardly revised 1.7% increase for March (from 1.1%).
That marked the first time that factory orders have increased in back-to-back months since June-July 2014.
Shipments also increased for the second straight month, rising 0.5% after increasing 0.3% in March.
Shipments of nondefense capital goods excluding aircraft -- a metric used in the GDP computation -- increased 0.4% after a downwardly revised 0.0% reading for March (from +0.5%).
Orders for durable goods jumped 3.4%, bolstered by a 65.3% increase in orders for nondefense aircraft and parts. Orders for nondurable goods increased 0.4%.
Total inventories for all manufacturing industries decreased 0.1% while the inventories-to-shipments ratio dipped to 1.36 from 1.37.
The Non-Manufacturing ISM Report on Business (aka The ISM Services Index) checked in at 52.9% in May, down from 55.7% in April. The Briefing.com consensus estimate was pegged at 55.4%.
May marked the 76th straight month of expansion in the non-manufacturing sector.
However, the trend here will nonetheless qualify as a disappointment since it points to a slowdown in activity for the largest side of the U.S. economy.
The downturn in April was driven by a drop in the indexes for New Export Orders (from 56.5 to 49.0), New Orders (from 59.9 to 54.2), Employment (from 53.0 to 49.7), and the Backlog of Orders (from 51.5 to 50.0).
The only indexes showing increases from April were Prices (from 53.4 to 55.6) and Supplier Deliveries (from 51.0 to 52.5).

There is no economic data of note scheduled for release on Monday. However, Fed Chair Yellen will speak before the World Affairs Council of Philadelphia at 12:30 ET.

S&P 500 +2.7% YTD
Russell 2000 +2.5% YTD
Dow Jones +2.2% YTD
Nasdaq Composite -1.3% YTD

Equity markets gapped lower at the start of the session as participants weighed a weaker-than-expected reading of the Employment Situation Report for May. Headline readings showed that nonfarm payrolls (38K) and nonfarm private payrolls (25K) each missed expectations by a wide margin. As a result, market expectations for a rate hike at the June meeting fell to 4.0%, compared to yesterday's probability of 21.0%. Other market data today included the trade deficit, which widened to $37.4 billion in April, new orders for manufactured goods which increased 1.9% in April and the non-manufacturing ISM report on business which checked in at 52.9% in May, down from 55.7% in April.

Friday's action concluded with modest losses, but well off daily lows. Action was led to the downside today by the Nasdaq Composite which lost 28.85 points (-0.58%) to 4942.52. The S&P 500 closed lower by 6.13 points (-0.29%) to 2099.13, and the Dow Jones Industrial Average was off yesterday's close by 31.50 points (-0.18%) to 17807.06. This week's trading took the three major US indices -1.3%, +2.7% and +2.2%, YTD respectively.

Technology (XLK 43.94, -0.10 -0.23%) capped off the last day of the week with modest losses, slightly compounding yesterday's losses. Component Yahoo! (YHOO 36.60, -0.55 -1.48%) was notably weak today as the NYPost detailed talks with Twitter (TWTR 15.19, -0.01 -0.03%) about a possible merger, talks which the Post suggests never got past early stages. Other sectors as measured by the S&P closed the day XLU +1.58%, XLB +0.85%, XLP +0.64%, XLI -0.09%, XLV -0.33%, XLE -0.39%, XLY -0.65%, XLF -1.43%, IYZ -1.93% as Utilities led the action higher and US Telecoms were the worst performer.

In the S&P 500 Information Technology (727.66, -3.09 -0.42%) sector, trading closed out the week with losses ending near the middle of the daily trading range. Component Broadcom (AVGO 162.56, +7.65 +4.94%) was an out-performer as the company reported better than expected Q2 EPS and in-line revenues. Other names in the space that were lower at the end of the day included AKAM -2.46%, TDC -2.24%, CTSH -1.99%, MU -1.91%, ADBE -1.47%, NVDA -1.40%, CTXS -1.39%, MSFT -1.31%, WDC -1.26%, FSLR -1.18%.
Other notable news items among sector components:

CSC (CSC 50.86, +0.42 +0.84%) and Racemi, a U.S.-based pioneer in migrating applications to the public cloud, announced that the companies have entered into an agreement to jointly help clients accelerate their transformation to leading cloud environments -- including Amazon (AMZN 725.54, -2.70 -0.37%) Web Services, Microsoft (MSFT 51.79, -0.69 -1.31%) Azure and IBM (IBM 152.89, -0.61 -0.40%) Softlayer.

Visa (V 79.94, -0.01 -0.01%) announced that the European Commission has approved the proposed acquisition of Visa Europe Ltd. by Visa Inc. The transaction is expected to close in Visa Inc.'s fiscal third quarter of 2016. Visa will announce the closing once it has occurred.

According to the NYPost, Twitter (TWTR) met with Yahoo! (YHOO) to discuss a possible merger, but talks never advanced past early stages.

Elsewhere in the tech space:

ViaSat (VSAT 73.08, +3.17 +4.53%) was selected for in-flight WiFi service on American Airlines (AAL 615.18, +27.68 +4.71%) 737 MAX fleet.

Gogo (GOGO 9.29, -1.78 -16.08%) reached an agreement with American Airlines (AAL) to continue to provide service on a meaningful portion of the American fleet.

Shares of GlobalStar (GSAT 0.95, -1.14 -54.55%) saw notable downside today following headlines that FCC member Jessica Rosenworcel could move to vote against the company's proposal to give a particular company special right to unlicensed spectrum.

Alibaba (BABA 76.62, -0.68 -0.88%) was modestly lower today on the heels of news that shareholder

SoftBank (SFTBY 27.71, -0.21 -0.75%) exercised over-allotment options in an offering of securities tied to shares of alibaba group totaling $10 billion in new capital raised.

In addition to reporting quarterly results, Ambarella (AMBA 46.47, +3.99 +9.39%) announced a $75 million share repurchase program commencing in Q2.

Exar (EXAR 7.87, +0.87 +12.43%) entered into an agreement to sell its Integrated Memory Logic subsidiary to Beijing E-Town Chipone Technology for $136 million net of cash acquired. The company also updated its 1Q17 outlook following the announcement.

AT&T (T 39.22, +0.39 +0.99%) made a $5 billion optional pre-payment of advances outstanding under the $9.155 billion Term Loan Credit Agreement, dated as of January 21, 2015.

Zebra Tech (ZBRA 54.76, +0.45 +0.83%) repriced its $1.96 billion term loan.

RIT Technologies' (RITT 0.27, -0.02 -6.90%) CEO Yossi Ben resigned.
In reaction to quarterly results:

Broadcom (AVGO) reported better than expected Q2 EPS of $2.53 on in-line revenues which rose 116.5% versus last year to $3.56 billion. The company also guided Q3 revenues in-line at $3.675-3.825 billion with expectations for Capital Expenditures to be about $230 million.

Ambarella (AMBA) reported better than expected Q1 EPS and revenues of $0.34 and $57.2 million, respectively.

Companies scheduled to report quarterly results next week:

Monday morning - XCRA; Monday afternoon - SIGM, XTLY;
Tuesday morning - YGE;
Tuesday afternoon - HQY, ITRI, SEAC, PAY, VRNT;
Thursday morning - PDVW;
Thursday afternoon - CMTL

Analyst actions:

MMYT was upgraded to Neutral from Reduce at Nomura;
QLIK was downgraded at Credit Agricole, DA Davidson, Brean Capital and RBC Capital Mkts,
TSL and JASO were downgraded to Neutral from Buy at Roth Capital;
IZEA was initiated with a Buy at Roth Capital,
GRUB and YELP were initiated with a Buy at Maxim Group,
EGHT was initiated with a Buy at Needham,
INFN was initiated with a Buy at Nomura,
RMBS was initiated with a Buy at Wunderlich,
MIME was initiated with a Buy at Dougherty & Co