6-2-16 – Where is the market going?

June 2, 2016
By Vlad Karpel

Stocks opened lower, but have recouped some of the morning losses and are trading mixed into midday Thursday. The S&P 500 is down 3.53 points to 2095.80 and 7 points off of session lows.

Treasury bonds are seeing strength as jobs data came in below expectations and as the equities market has starts the month of June in lackluster fashion. The yield on the benchmark ten-year has dropped to 1.81%, from 1.85% late-Wednesday.

Crude oil is off 25c to $48.75 and gold lost $2 to $1213.

On Wall Street, markets sectors are mostly lower. Energy (XLE), Utilities (XLU), and Tech (XLK) are the biggest losers. Healthcare (XLV) is seeing relative strength.

CBOE Volatility Index (.VIX) is up .21 to 14.41 and options volumes are light. Roughly 2.4 million calls and 2.2 million puts traded across the exchanges through the first two hours. Projected volume of 11.4 million for the day is more than 20% less than the one-month daily average.

iShares Small Cap Fund (IWM) Aug 104 puts, SPDR 500 Trust (SPY) Jun 212 calls, and Micron Tech (MU) Jun 13 calls are among the most actively traded contracts.

The overall market action is quiet to start the month of June. After gaining 2.4 points to test the 2100 level Wednesday, the S&P 500 is down a few points through midday Thursday.

Monthly jobs data tomorrow will serve as the next catalyst for the equities market, as it will help shape expectations for the June 15th FOMC meeting. Economists expect Friday’s report to show the economy adding 155,000 jobs for May and the rate of unemployed remaining unchanged at 4.9%.

Given the uncertainty related to Fed policy, tomorrow’s jobs data certainly has the potential to stir up volatility across global financial markets, including the US dollar. The chart below of the Bullish Dollar Fund (UUP) shows the buck chopping around in a range in the past two days ahead of the report. This ETF tracks the performance of the dollar against a basket of foreign currencies and is heavily-weighted towards the Euro/US dollar currency pair.




While the recent action in the dollar has been somewhat choppy, the Bullish Dollar Fund certainly picked up a bit during the month of May. Shares rose nearly 3%, which is a relatively large move for the currency markets. However, prior to the rebound in May, shares had slumped 6% since 2015.

Dollar weakness in the past six months seems to be one reason for the equity market’s resilience in the face of rather disappointing earnings releases so far this year. That is, a weaker dollar could help spur an earnings growth turnaround (particularly for multi-nationals) in the second half of the year. Since April, however, the trend has been in the opposite direction and continued strength in the dollar might serve as a negative for the equities market, even if improving economic data is fueling that strength.

Meanwhile, the S&P 500 continues to face resistance at 2100, 2110 and 2115. Short-term support likely at 2096, 2085, and 2076.

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