Global shocks, market rocks

01/13/20
  • New highs for US stocks despite Middle East drama
  • Oil spikes, then retreats; gold still elevated
  • This week: Gear up for earnings season

Geopolitical turmoil and a milquetoast jobs report weren’t enough to derail US stocks in the first full week of 2020, as the S&P 500 index (SPX) set three consecutive record highs after Iran launched a retaliatory missile attack for the US drone strike that killed one of its top generals on January 3:

Chart 1: S&P 500 (SPX), 10/20/19–1/10/20. S&P 500 (SPX) price chart. New records despite confrontation.

Source: Power E*TRADE


The move: The Nasdaq 100 (NDX) gained 2% last week—it’s biggest weekly return since October—and for good measure, the tech index topped 9,000 for the first time.

The numbers: 145,000—the number of new jobs created by the US economy in December. Unemployment remained at 3.5%.

The headline: Middle East clash fails to derail markets. Despite jolts delivered by the January 3 US drone strike and Iran’s retaliatory missile launch on January 7, by Thursday US equities were at new record highs, and oil had retreated to pre-confrontation levels.

The fine print: Look for earnings and US–China trade issues to reclaim center stage as the Iran story recedes.

The quote: “I think this market is fully valued and not undervalued, but I don’t think it’s overvalued.” Wharton School of Business finance professor Jeremy Siegel, commenting on the US stock market.1

So far, 2020 is looking a lot like 2019—tech is leading and small caps are lagging:

US stock index performance table for week ending 1/10/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were information technology (+2%), communication services (+1.9%), and health care (+1.4%). The weakest sectors were energy (-1.1%), materials (-0.4%), and financials (-0.3%).

Highlight reel: On Tuesday Apellis Pharmaceuticals (APLS) jumped 28% to $38.73 and Apache (APA) rallied 27% to $32.51. On the downside, Tufin Software (TUFN) fell 24% to $13.08 on Thursday, and Portola Pharmaceuticals (PTLA) tumbled 40% to $14.76 on Friday.

Futures action: February WTI crude oil spiked as high as $65.65/barrel Tuesday night after Iran’s missile launch, but by the end of the week the market was nearly 10% lower at $59.15. Gold jumped above $1,600/ounce for the first time since early 2013, and although it also retreated as tensions eased, the February futures contract (GCGO) closed Friday around $1,562/ounce—still above where it was before the confrontation started. And March cotton (CTH0) extended its uptrend, hitting a 10-month high of 71.39.

Coming this week

See those big banks reporting earnings on Tuesday and Wednesday (…and Thursday)? That means earnings season is underway. But the calendar is also spiced up with a couple of airlines, oil stocks, and transports:

●Monday: United Airlines (UAL), Pinnacle Financial Partners (PNFP)

●Tuesday: Delta Airlines (DAL), Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), Kinder Morgan (KMI)

●Wednesday: Alcoa (AA), Atlassian (TEAM), Bank of America (BAC), BlackRock (BLK), U.S. Bancorp (USB), PNC Financial Services (PNC), UnitedHealth (UNH), Goldman Sachs (GS)

●Thursday: Bank of New York Mellon (BK), CSX (CSX), Morgan Stanley (MS)

●Friday: JB Hunt (JBHT), Fastenal (FAST), First Horizon National (FHN), Kansas City Southern (KSU), Schlumberger (SLB)                                    

Inflation data, retail sales, and housing data are highlights on the week’s economic calendar:

Monday: Great Britain GDP

Tuesday: Consumer Price Index (CPI)

Wednesday: Producer Price Index (PPI), Beige Book             

Thursday: Retail sales, Import and Export prices, Business Inventories, NAHB Home Builders' Index

Friday: Housing Starts and Building Permits, Industrial Production and Capacity Utilization, Consumer Sentiment, JOLTs (job openings)

Go to the E*TRADE market calendar (login required) for an up-to-date earnings schedule and a complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs and economic report times each morning.

How now, Dow? The Dow Jones Industrial Average (DJIA) reached another milestone last week, topping 29,000 for the first time—which is interesting only because it will kickstart the inevitable (get ready, you’ve been warned) “Dow 30,000” chatter.

Truth be told, there’s no real significance to that milestone, either, other than big, round numbers make  good stories, and this will be (whenever it happens) the Dow’s biggest, roundest number since it topped 20,000 in 2017. So let the games begin.

The Dow hit an intraday high of 29,009.10, around 3.4% below 30,000. Since 1985, the Dow has, on average, gained around 3.6% every 90 trading days, so if you wanted to take a wildest of guesses when the Blue Chip index may top 30k, you could plan to put the Champagne on ice around 18 weeks from now—say, mid-May.

If you wanted to take things a step further, you could gauge the time it took the Dow to reach other round-number targets when it was a similar distance below them. For example, here’s how long it took the Dow to reach 5,000, 10,000, 15,000, 20,000, and 25,000 after it first rallied to within 3.4% of them:

●Average wait: 21 trading days

●Shortest wait: 7 trading days (runup to Dow 10,000)

●Longest wait: 35 trading days (runup to Dow 15,000)

Who knows how long it will really take, but if you’re planning a Dow 30,000 party, it’s a starting point

 

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1 MarketWatch. Man who called Dow 20,000 says one of the biggest stock-market dangers in 2020 is ‘people could be throwing risk to the wind.’ 1/6/20.

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