Market rides sentiment shifts

If you saw nothing but last week’s S&P 500’s return (-0.04%, a little more than two points), you could be forgiven for assuming it was an uneventful five days. Those who were in the market know differently.

The most volatile week of 2024 for US stocks ended with the S&P 500 (SPX) declining for a fourth week—its longest stretch since last September. But the index also trimmed its loss significantly by Friday as concerns about a potential recession appeared to ease. And the Nasdaq 100 (NDX) tech index ended the week higher after initially leading the market to the downside.

Last Monday’s 3% sell-off dropped the SPX to its lowest level in more than three months, but the index subsequently erased 99% of the week’s loss—thanks mostly to a big Thursday rally following the weekly jobless claims report:

The headline: Week starts poorly, ends better.

The fine print: The surprisingly soft August 2 monthly jobs report was widely blamed for the market’s accelerated decline, but last Thursday’s lower-than-expected jobless claims total appeared to quell some of the speculation that the economy was cooling off too much. Morgan Stanley & Co. economists noted that they don’t expect the US economy to slow excessively.¹

The move: On Monday, the Cboe Volatility Index (VIX) jumped as much as 181% intraday (to 65.73), a record intraday gain, before closing up 65% at 38.57. The VIX ended the week lower at 20.43.

The scorecard: The NDX was the only major index to gain ground last week:

Sector returns: The strongest S&P 500 sectors last week were energy (+1.3%), industrials (+1.1%), and communication services (+0.5%). The weakest sectors were materials (-1.7%), consumer discretionary (-1%), and utilities (-0.9%).

Stock movers: On Thursday, Harrow (HROW) +54% to $33.92 and XPEL (XPEL) +48% to $46.89. On the downside, JFrog (FROG) -28% to $24.68 on Thursday. PubMatic (PUBM) -28% to $14.06 on Friday.

Futures: After hitting its lowest low since February 6 last Monday, September WTI crude oil (CLU4) rebounded to end the week up $3.46 at $76.98. December gold (GCZ4) closed Friday at $2,470.60, up less than $1 for the week. Week’s biggest gains: December cocoa (CCZ4) +13%, September natural gas (NGU4) +9.5%. Week’s biggest declines: September VIX (VXU4) -14%, August ether (ETHQ4) -13.8%.

Inflation takes center stage this week:

●Monday: NY Fed consumer inflation expectations
●Tuesday: NFIB Business Optimism Index, Producer Price Index (PPI)
●Wednesday: Consumer Price Index (CPI)
●Thursday: Retail Sales, Import Price Index, Empire State Manufacturing Index, Philadelphia Fed Manufacturing Index, Industrial Production and Capacity Utilization, business inventories, NAHB Housing Market Index
●Friday: Housing Starts and Building Permits, consumer sentiment (prelim)

Earnings this week include:

●Monday: Barrick Gold (GOLD), Monday.com (MNDY)
●Tuesday: Home Depot (HD), XP (XP)
●Wednesday: UBS (UBS), Cisco (CSCO), StoneCo (STNE)
●Thursday: Alibaba (BABA), Dillard’s (DDS), Deere (DE), Tapestry (TPR), Walmart (WMT), Applied Materials (AMAT)
●Friday: Flowers Foods (FLO)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Thanks to a 3.6% gain last Thursday-Friday, the NDX managed to close higher five trading days after entering a correction for the 22nd time (out of 26) since 1985. Also, last Monday the tech index closed 3% lower, in line with its tendency (17 out of 26 times) to extend its losses after initially closing in correction territory.

However, if last Monday turns out to be the move’s low, it will be the NDX’s shortest correction that didn’t begin and end on the same day. Previously, the shortest was four trading days (in August 1999), one of three corrections that lasted more than one trading day but fewer than 10.

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¹ MorganStanley.com. What This Rollercoaster Week Means for Bonds. 8/7/24.