Stocks swing to weekly gain

02/07/22
  • Stocks climb for second week, but choppiness continues
  • Oil tops $90, jobs report defies expectations, yields jump
  • This week: Inflation (CPI), DIS, PTON, UBER, and PFE earnings

It may not feel like it, but US stocks just notched back-to-back up weeks for only the second time since early November.

Last week’s gain may have looked like a lock on Wednesday, but continued volatility amid a high-profile earnings surprise and the monthly jobs report left the outcome in doubt until Friday afternoon.

Meta Platforms’ (FB) earnings miss last Thursday weighed on the communications services and tech sectors (the Nasdaq 100 fell more than 4%), helping break the S&P 500’s (SPX) first four-day win streak of the year. The market initially climbed in the wake of Friday’s surprisingly strong jobs report, but soon swung into the red—nearly dropping to breakeven for the week—before zigzagging to a higher close:

Chart 1: S&P 500 (SPX), 12/15/21–2/4/22. S&P 500 (SPX) price chart. Late-week volatility.

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


The headline: Market extends bounce as jobs report beats.

The fine print: The fact that the US added 467,000 new jobs in January—more than three times as many as expected—may have been the highlight of Friday’s jobs report, but December’s payrolls number was also revised upward, from a tepid 199,000 to a robust 510,000. The numbers defied concerns the Omicron variant would be reflected in job losses last month.

The move: The 10-year T-note yield jumped more than 5% on Friday to 1.93%. The last time the benchmark rate touched that level was on December 31, 2019 (although it’s still near the bottom of its long-term historical range). Morgan Stanley Wealth Management strategists recently noted that the yield advance may be only approximately halfway done.1

The scorecard: The Russell 2000 (RUT) led the market last week, although it still trails year to date:

US stock index performance table for week ending 2/4/20. 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 discretionary (+3.7%), financials (+1.7%), and energy (+1.6%). The weakest sectors were materials (-1.7%), real estate (-1.3%), and consumer staples (-1.2%).

Highlight reel: On Monday, Bassett Furniture (BSET) +33% to $18.56, Haynes International (HAYN) +21% to $37.62. On Thursday, Meta Platforms (FB) -26% to $237.60, Snap (SNAP) -24% to $24.5.

Futures action: US crude oil prices topped $90/barrel for the first time since October 6, 2014, and March WTI crude oil (CLH2) ended the week at a new contract high of $92.31. April gold (GCJ2) rebounded modestly from the previous week’s sell-off, closing Friday at $1,807.80/ounce. Biggest up moves: February ether (ETHG2) +17.8%, March oats (ZOH2) +8.2%. Biggest down moves: February VIX (VXG2) -11.4%, March orange juice (OJH2) -8.4%.

Coming this week

A sample of this week’s earnings:

Today: Hasbro (HAS), ON Semiconductor (ON), Tyson Foods (TSN), Take-Two Interactive (TTWO), Amgen (AMGN), Chegg (CHGG), Teradata (TDC)
Tuesday: Enphase Energy (ENPH), Warner Music (WMG), Pfizer (PFE), Incyte (INCY), Fiserv (FISV), Harley-Davidson (HOG), New Relic (NEWR), Lyft (LYFT), Paycom (PAYC), Peloton (PTON), XPO Logistics (XPO), Spirit Airlines (SAVE), Chipotle (CMG)
Wednesday: CVS Health (CVS), Honda (HMC), PepsiCo (PEP), Uber (UBER), Toyota (TM), Canopy Growth (CGC), Yum! Brands (YUM), Walt Disney (DIS), Mattel (MAT), O'Reilly Automotive (ORLY)
Thursday: Philip Morris (PM), Twitter (TWTR), Kellogg (K), Martin Marietta (MLM), Coca-Cola (KO), Zillow (ZG), Upwork (UPWK), VeriSign (VRSN)
Friday: Mr. Cooper Group (COOP), Dominion Energy (D), Under Armour (UA), Cleveland-Cliffs (CLF)

The latest consumer inflation data sticks out on the economic calendar:

Today: Consumer Credit
Tuesday: NFIB Business Optimism Index, Trade Balance
Wednesday: Wholesale Inventories
Thursday: Consumer Price Index (CPI)
Friday: Michigan Consumer Sentiment (preliminary)

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

Weekly stock market pivots

Last week’s rally bucked the odds in a small but notable way. The week of January 24-28, the SPX fell to a 30-week low but rallied to close higher—a pivot it’s matched or exceeded just 53 other times since 1957. More often than not (30 times out of 53) the index lost ground the following week.2 Not so last week, as the SPX swung to a higher weekly close.

Overall, the SPX performed better over the next three months when it followed one of these pivot weeks with another weekly gain:

12-week median return after pivot week followed by up week: 4.4% (higher 20 out of 23 times).

12-week median return after pivot week followed by down week: 1.3% (higher 17 out of 30 times).

With the market facing unique circumstances, including inflation pushing generational highs and Fed interest rates on the horizon, it will be interesting to see if the market’s historical pattern plays out this time around.

 

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1 MorganStanley.com. Should Investors Brace for More Volatility? 1/25/21.
2 All figures reflect S&P 500 (SPX) weekly closing prices, 12/30/56–1/31/21. “Pivot week” refers to a week with a low below the lows of the previous 30 (or more) weeks and a closing price above the previous week’s close. Supporting document available upon request.

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