The main U.S. stock market indexes lost 2.0-2.5% on Friday, breaking below their three-day-long consolidation as investors reacted to quarterly corporate earnings, economic data releases, among others.
When markets are priced for perfection, a slight shift in sentiment causes much damage. This is what we saw last week, after U.S. jobs report showed wage growth accelerated at its quickest pace since mid-2009.
A solid headline read on Nonfarm Payroll Friday led by firm growth in wages sent 10-year treasury yields to the highest level since January 2014. We discussed throughout last week that this is the main headwind in the equity market bull-run.
Crude oil and the stock market took great red-hot economic news and tried to turn it into bad news. Red hot economic data, unlike anything we have seen in years, raised fears that the Federal Reserve would have to move quickly and raise interest rates. Yet, what the economic data is saying about potential future energy demand is almost mindboggling and the fracker better get fracking as we may have a hard time meeting future demand.
Is this the beginning of a deeper selloff or just a short-term shake out? Lets first step out of the forest to see the trees; the S&P 500 is still up 3% on the year. What caused last week’s selling? It's difficult to pinpoint one main catalyst but here are a few. First and foremost, we discussed a trend line on last Monday’s Morning Express at the 2850 area which would be critical to keeping this immediate-term uptrend intact.
Crude oil bears may have seen their shadows signaling at least six more months of a bull oil market. Or is it six years? Even with reports of U.S. oil production driving more than 10 million barrels of oil a day, the decline in global oil stockpile continues to support the market. OPEC compliance to its production cuts are at a whopping 129% even as their production rose slightly.