Summer rally takes a break

08/22/22
  • Stocks step back after hitting new rebound high
  • Retail mixed, FOMC minutes suggest Fed unlikely to back off rate hikes
  • This week: Jackson Hole, Fed inflation, more retail earnings

The US stock market’s bid for a fifth-consecutive up week came up short as traders sifted through a mixed—but mostly positive—bag of retail earnings and economic data last week.

Still, the summer rally extended to nearly 18% last Tuesday when the S&P 500 (SPX) pushed to its highest point since April 22. But after drifting lower the next two days, the market sealed its fate for the week with a sharp Friday sell-off:

Chart 1: S&P 500 (SPX), 5/23/22–8/19/22. S&P 500 (SPX) price chart. End of week retreat.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)


The headline: Bulls take a breather.

The fine print: “Retail’ was mixed last week, in more ways than one. Home Depot (HD) and Walmart (WMT) beat earnings estimates, while Target (TGT) missed. July’s retail sales number also had a bit of a split personality: It was unchanged for the month (underperforming forecasts), but showed a much-better-than-anticipated 0.7% gain excluding auto and gasoline sales.1

The number: 8. Last week snapped the Cboe Volatility Index’s (VIX) record-setting run of eight lower weekly closes and lows.

The move: Bed Bath & Beyond (BBBY) jumped from $12.95 to as high as $30  (+132%) in the first three days of last week, only to slide back to $11.03 (-63%) by Friday as Ryan Cohen’s RC Ventures sold its stake in the company.2

The scorecard: Tech and small caps gave up the most ground last week:

US stock index performance table for week ending 8/19/22. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)


Sector roundup: The strongest S&P 500 sectors last week were consumer staples (+2%), utilities (+1.3%), and energy (+1.1%). The weakest sectors were communication services (-3.2%), materials (-2.4%), and real estate (-1.8%).

Stock movers: Wolfspeed (WOLF) +32% to $112.94 on Thursday, Axsome Therapeutics (AXSM) +40% to $59.55 on Friday. Biomea Fusion (BMEA) -22% to $10.6 on Wednesday, Bed Bath & Beyond (BBBY) -41% to $11.03 on Friday.

Futures: After trading as a low as $85.37/barrel last Tuesday, October WTI crude oil (CLV2) rebounded on Thursday but ended a choppy Friday down for the week at $90.44. Last week December gold (GCZ2) gave back roughly half of its $107 rally off its July lows, falling every day and closing Friday at $1,762.90/ounce. Week’s biggest gains: December cotton (CTZ2) +6.8%, September natural gas (NGU2) +5.9%. Week’s biggest losses: August Micro ether (METQ2) -12.7%, August Micro bitcoin (MBTQ2) -12.4%.

Coming this week

In addition to Fed inflation (PCE Price Index) and the second estimate of Q2 GDP, the widely watched Jackson Hole Economic Symposium kicks off this week:

Today: Chicago Fed National Activity Index
Tuesday: S&P Global U.S. Manufacturing and Services PMIs (flash), New Home Sales
Wednesday: Durable Goods Orders, Pending Home Sales, Jackson Hole Economic Symposium
Thursday: Q2 GDP (2nd estimate), Jackson Hole Economic Symposium
Friday: Personal Income and Spending, PCE Price Index, Trade in goods (advance), Consumer Sentiment, Jackson Hole Economic Symposium

This week’s earnings calendar features more retail stocks, but there’s also a healthy dose of tech:

Today: Palo Alto Networks (PANW), Zoom Video Communications (ZM)
Tuesday: Toll Brothers (TOL), J.M. Smucker (SJM), Dick's Sporting Goods (DKS), Urban Outfitters (URBN), Macy's (M), Nordstrom (JWN), Intuit (INTU), Medtronic (MDT)
Wednesday: Autodesk (ADSK), Ollie's Bargain Outlet (OLLI), Box (BOX), Guess (GES), NetApp (NTAP), Splunk (SPLK), Williams Sonoma (WSM), Snowflake (SNOW), Salesforce (CRM)
Thursday: Affirm (AFRM), Burlington Stores (BURL), Ulta Beauty (ULTA), Dollar General (DG), Dollar Tree (DLTR), Gap (GPS), Workday (WDAY), Peloton (PTON)
Friday: JinkoSolar (JKS), Ubiquiti (UI)

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

Digesting the numbers

Last week’s focus on the retail sector may have resulted in more than a few traders and investors overlooking other areas of the economy, but there was some interesting data to sift through.

The housing cool-down continued, with housing starts soft in July and existing home sales down more than 20% from a year earlier.

On the other hand, industrial production was stronger than expected last month, and Leading Indicators—an index of economic components designed to forecast conditions six months out—also topped estimates (although the reading was still negative), and the previous month was revised upward.

But last week’s biggest surprise may have been the Empire State Manufacturing Index, which came in at -31.3 (deep in contraction territory) when analysts had expected a reading of +5.3

Looking ahead, this week’s Jackson Hole Economic Symposium—specifically, any verbiage from Fed chief Jerome Powell—will be dissected for any hints about the Fed’s mindset after last week’s FOMC minutes gave traders and investors little to go on, other than the notion that the central bank is unlikely to back off interest rate hikes until data shows inflation has fallen significantly.4

 

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1 Econoday.com. Retail Sales. 8/17/22.
2 Reuters. Meme stock Bed Bath & Beyond sinks after investor Cohen's exit. 8/18/22.
3 MarketWatch.com. New York Empire State factory gauge plunges in August deep into contraction territory. 8/15/22.
4 New York Times. Federal Reserve Officials See Inflation Staying ‘Uncomfortably High.’ 8/17/22.

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