U.S. equities remained stuck in the same narrow trading range for the fifth straight week. The S&P 500 index suffered only a fractional loss, but it took a surge higher on Friday to salvage even that, as anxiety over trade and interest rates was set aside following the April jobs report and some soothing comments from Warren Buffet. The S&P 500 once again flirted with its 200-day moving average at 2616 in intraday trading on Thursday, but again managed to close higher. At the same time, it has failed to close above its 100-day moving average, now at 2705, since April 18, and has done so only twice since March 21.
The economy generated 164,000 new non-farm jobs in April, and including the upward revision to the March report delivered growth in-line with the Bloomberg consensus forecast of 194,000. Together with a modest downtick in the participation rate, the unemployment rate fell to 3.9 percent, its first print below 4.0 percent since 2000. That move will undoubtedly intensify the debate over the relevancy of the Phillips curve, which is used as an indication of the relationship between the unemployment and inflation rates, but at least for this report average hourly earnings growth year-over-year remained relatively benign at 2.6 percent.
There was little movement in bonds during the week. The ten-year note yield fell just one basis point to 2.95 percent, and the two-year rose three to 2.50 percent. High yield credit spreads widened modestly, extending a three-week trend, but ended the week right at the year-to-date average of 350 basis points, and well below its five-year average of 467 basis points. Investment grade spreads also widened modestly last week, but the trend is a little less benign. BBB rated corporate yield spreads have been widening since the start of February, when they bottomed at 115 basis points. The spread ended last week at 148, the widest since last September. While that bears watching, it is still below its five-year average of 180 basis points.
The Fed Seems to be Relatively Confident
The Federal Reserve left interest rates unchanged last week as expected. In its meeting statement the Fed acknowledged the recent rise in inflation toward its 2.0 percent target, but did so in the context of that target being symmetrical, which it referenced twice. The implication seems to be that the Fed will remain relatively sanguine should inflation rise somewhat above the longer-term target, at least temporarily. At the same time, however, the Fed said nothing to alter the view that it remains on course to raise rates at least twice more this year.