Back in record territory

Earnings were mostly strong, the monthly jobs report eased concerns about a September rate hike, and the tech sector found its footing, but geopolitics arguably made the difference for US stocks last week: The market appeared to get its biggest boost from a drop in oil prices amid the latest reports of US-Iran negotiations to reopen the Strait Hormuz.

As US crude oil prices tumbled more than 10% last Monday-Tuesday, the S&P 500 (SPX) jumped 3.3%, setting a record close on Tuesday and an all-time intraday high on Wednesday. Friday’s rally carried the index to a fresh record close, and helped deliver its biggest weekly gain since mid-April:

The headline: SPX breaks out of May-July trading range.

The fine print: The extent to which the drop in oil prices appeared to fuel bullish momentum in the stock market raises the possibility that another diplomatic breakdown (or military hostilities) could have the opposite effect. Last week ended without any clear evidence of progress in resolving the US-Iran standoff.

The numbers: -23,000 and 14%. The surprising decline in jobs revealed in Friday’s jobs report (and downward revisions of previous months’ gains) may have been a reality check for the wider economy, but it was also followed by a roughly 14 percentage point decline (from 54% to 40%) in the market-based odds of a September rate hike.¹ Ellen Zentner, Chief Economic Strategist for Morgan Stanley Wealth Management, noted that if the inflation numbers are hotter than expected, it could increase the pressure inside the Fed to hike interest rates.

The scorecard: The Nasdaq 100 (NDX) tech index posted the biggest gain last week, but the Russell 2000 (RUT) small-cap index still has a comfortable year-to-date lead. The RUT and the Dow Jones Industrial Average (DJIA) joined the SPX in hitting new record highs:

S&P 500 sector returns: The strongest S&P 500 sectors last week were consumer discretionary (+8.3%), communication services (+5.4%), and consumer staples (+1.2%). The weakest sectors were utilities (-4.2%), real estate (-2.2%), and materials (-1.7%).

S&P 500 stock movers: Last week’s biggest gains were Coherent (COHR) +44% to $379.13 and Palantir (PLTR) +40% to $172.01. The biggest losses were Trade Desk (TTD) -24% to $13.80 and DaVita (DVA) -23% to $183.77,. Other moves: Ibotta (IBTA) +47% to $37.34 and Better Home & Finance (BETR) -37% to $17.27, both on Tuesday.

Yields and the dollar: The 10-year US Treasury yield fell 0.07% to 4.64% last week. The US Dollar Index (DXY) fell 0.37 to 99.54, mostly because of selling after Friday’s jobs report.

Commodity futures: September WTI crude oil (CLU6) ended the week down $6.49 at $78.18. Reflecting a wider rally in metals of all kinds (copper hit an all-time high), December gold (GCZ6) jumped $292.70 (7.2%) to $ 4399.70—its biggest one-week gain since January. Biggest gains: October sugar (SBV6) +12.2%, September silver (SIU6) +9.9%. Biggest declines: September orange juice (OJU6) -8%, September WTI crude oil (CLU6) -7.7%.

Crypto: Bitcoin +3.3% to $64,880.19 last week, Ethereum +2.9% to $1,913.28.

Coming this week

Inflation data takes center stage this week:

●Tuesday: NFIB Business Optimism Index, Existing Home Sales
●Wednesday: Consumer Price Index (CPI)
●Thursday: Producer Price Index (PPI)
●Friday: Retail Sales, Consumer Sentiment (prelim), Business Inventories

This week’s earnings include:

●Monday: AST SpaceMobile (ASTS), Barrick Mining (B), Dillard's (DDS), Rocket Lab (RKLB)
●Tuesday: Cisco (CSCO), On Holding (ONON), Super Micro Computer (SMCI), USA Rare Earth (USAR)
●Wednesday: Andersen Group (ANDG), Cerebras (CBRS), (COHR), Gorilla Technology (GRRR), Nebius (NBIS)
●Thursday: Applied Materials (AMAT), CoreWeave (CRWV), Intuitive Machines (LUNR), Nektar Therapeutics (NKTR), StoneCo (STNE), Tapestry (TPR)
●Friday: Sigma Lithium (SGML)

Fast August starts

The SPX’s 3.6% gain last week was its strongest first five trading days of August since 1996, and the fourth-strongest overall since 1957. Such an energetic start may seem to feed into other potentially bullish developments for the month as a whole (see “The inside scoop on inside months”), but the table below shows the SPX’s performance after its 10-strongest starts to August, while net bullish, has some noteworthy caveats.

While the SPX ended August with a positive return in eight of 10 cases, it gained additional ground after the first five days just six times overall:²

In contrast, the 10 weakest first five days of August were more consistently followed by upside the rest of the month. The SPX ended August with a loss in just six of the 10 cases, and it had a positive return through the rest of the month in eight cases.

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