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U.S. Election and Earnings Pressure U.S. Shares

Posted on | November 11, 2016 | 1 Comment

U.S. stocks have been under pressure in the latter days of October and the beginning of November as Presidential election jitters took hold sending the VIX volatility index up 70% since hitting a low on October 25, and experienced its first 8-day rise since 2008.  In fact, the S&P 500 large cap index had its first 8-day slide since October 2008, with many large cap stocks getting hammered.  Earnings have been part of the reason for the decline.  Facebook had better than expected earnings and revenue but their outlook spooked the market.  On share trading also faced increasing yields which moved above 1.75%, following stronger than expected average hourly earnings.

On Friday, November 4, the Department of Labor reported its non-farm payroll report. The 161K increase was slightly less than the 170K increase expected, but it was more than made up for by the revisions from the prior months. September was revised to 191k September gain, with August bumped to 176 from 167k, for a net +44k. The unemployment rate also declined to 4.9% from 5%, which showed increasing jobs gains. The real meat of the report came with wages, which are moving higher and could give the Federal Reserve the ammunition it needs to pull the trigger in December and raise rates.

Average hourly earnings surged 0.4% from 0.3%. Average weekly hours were steady at 34.4. Private payrolls added 142k, with the goods producing sector unchanged, while manufacturing lost 9k, with construction up 11k. Service sector jobs increased 142k, led by education, health, up 52k. Government jobs were up 19k. The U6, dropped to 9.5% which was the lowest since April 2008.

Additionally, it appears that export in the U.S. are improving. U.S. trade deficit narrowed 9.9% to -$36.4 billion in September, from a revised -$40.5 billion short-fall in August. Imports declined 1.3% versus the 1.2% August gain, with exports edging up 0.6% versus 1.0% previously. Excluding petroleum, the trade balance posted a -$31.3 billion deficits, versus -$35.1 billion in the prior month.

The Nasdaq was dragged down by the large decline in Facebook shares following the social media giant’s financial results. Although the company beat on both the top and bottom line, their outlook gave investors pause. The company said that they have maximized advertising revenue without reducing the user experience. This means that they will no longer be able to make any incremental growth in advertising revenue.

The shares gapped lower and finished the session following its financial results down 5.7%.  This type of decline is bearish, as those who are long are now trapped, and will likely look to sell their shares if prices retrace back to former support now resistance near the 128 level.  Volume on Facebook shares soared to the highest level of the year, which is bearish on a large down day as it shows many people are attempting to exit their positions.  The only redeeming technical quality is that the shares are oversold and could see a rebound in price action as the RSI prints a reading below 30.