By: Kent Engelke | Capitol Securities

In my view, May’s labor report was weak. Yes, the unemployment rate did fall to a sixteen year low of 4.3%, but the reason for this decline was the result of workers leaving the work force. The labor participation rate (LPR) declined to 62.7% from 62.9%. Wage growth is still subpar. Non-farm and private sector job creation disappointed.

However, the two positives of the report was the decline in the U-6 unemployment rate to 8.4%, the lowest since November 2007. The U-6 rate is comprised of workers who have left the workforce and part time workers who are looking for full time jobs. Accordingly, the number of part time workers also declined.

Some have stated the disappointing data is the result of the lack of qualified workers. Others state it is the result of changing demographics. I think it is all of the above including the fear of companies hiring more workers until there is legislated regulatory relief. I believe it is noteworthy the number of job openings are around a record high, positions that obviously have not yet been filled.

The data was nominally market positive.

Many times I have commented about the outsized influence of ETFs and index funds. There are now more indices than listed stocks, a statistic that I find difficult to comprehend.

The funds that are now invested into ETFs or index funds are gargantuan. According to Morningstar, a whopping 46.7% of assets invested in US stocks are via ETFs or index funds, up from 36.3% three years earlier.

Wow! The above data is of concern given the potential imbalances such rampant indexing can create. As noted many times, there is no macroeconomic thought or security research involved. Investing decisions are based only on capitalization

I find it interesting the father of indexing, Jack Bogle, has again echoed the above fears.

Speaking of fears, many times I have commented about the massive volatility occurring beneath the surface. This view has been perhaps validated. According to the WSJ, some academics are voicing concerns the VIX is being manipulated to suggest volatility is nonexistent, taken advantage of the inherent flaw in its design in order to unfairly profit.

Today, Bloomberg reported the volatility index rose to a new record last week, its fourth week of gains in five.

In many regards, the human element has been discarded from investment strategies for the simple reason all markets — being financial markets or the real economy — are comprised of people, people who react to outside stimuli, behavior that technology fails to recognize in the present tense.

What will happen this week? The economic calendar is relatively sparse, so trading may be dictated by the headlines.

Last night the foreign markets were down. London was down 0.22%, Paris was down 0.59% and Frankfurt was closed for a holiday. China was down 0.45%, Japan was down 0.03% and Hang Sang was down 0.24%.

The Dow should open quietly lower. The 10-year is off 4/32 to yield 2.18%.