Week Ahead: Recession Risks Ease, Markets Hit New Highs But Internals Weak

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The Russell 2000 outperformed on Friday, surging 2.14%. It scaled to its highest point since Oct. 1, breaking out of an ascending triangle, which was supported by the 100 DMA, as the 50 DMA approaches the 200 DMA, heading for a golden cross, if the breakout pattern follows through; It could also become resistance, if the 0.8% breakout proves a bull trap.

Small caps have been outperforming much of the time for a while now, and investors once again demonstrated confidence in their positions by locking in the week’s close at the index's highest point. For the week, the Russell added 1.39%, far outperforming on that scale too. It’s interesting to note that as of late April the dollar completed an ascending triangle, as well (which has been repeatedly tested). Perhaps the outlook for an increasingly strong dollar hurting overseas sales of mutlinational mega caps is also boosting domestic firms.

Friday's employment report showed that the unemployment rate unexpectedly fell to 3.6%, a new, 49-year low, though wages didn’t grow—something that could have been expected with the tighter jobs market. The average hourly pay rate increased by 6 cents, or .2% MoM, to $27.77 in April, coming in below the 0.3% expectation.

This pattern of stronger employment not followed by proportionate wage increases, which would put more money in the hands of consumers, thereby increasing demand for goods to drive prices higher, spurring inflation, has led some to designate this a Goldilocks Economy—it's running not too hot and not too cold, chugging along at a moderate speed. Some see this as the ideal situation, claiming it can stay for the long haul, rather than stall because it’s too slow, or burn-out because it’s overheating.

Still, some are leery of the participation rate, which fell to 62.8% from 63%, on concerns that the low unemployment rate is at least partly due to individuals simply giving up looking for work. It gets yet more complicated when one is asked to explain why wages aren't rising as expected if this is supposed to be an employee’s market.

If it’s because middle- and working-class employees are being left out of the economy, is it fair to make the case it's truly growing? Will the lowest unemployment rate since December 1969 be sustainable without this huge, integral chunk of the workforce? What happens when workers and labor unions decide to strike in order to coerce employers to raise wages?

Finally, perhaps the biggest question economists have been trying to answer for quite some time now is when and what would be the impact of exponential technological advancements on workers who are unable to adapt to the ever accelerating, changing labor landscape as computers and robotics take on a growing piece of the employment pie.