Market seeks momentum

  • Stocks pull back as hot CPI and PPI increase odds of aggressive Fed
  • Earnings season off to mixed start, retail sales rebound
  • This week: Airline earnings, housing numbers, leading indicators

After starting the second half of the year with a bounce, US stocks took a step back last week as traders and investors digested another round of hotter-than-expected inflation data.

Sound familiar?

Overall, though, the market’s losses were relatively modest, as the S&P 500 (SPX) ended the week with a strong Friday rally after falling to a three-week intraday low on Thursday:

Chart 1: S&P 500 (SPX), 5/9/22–7/15/22. S&P 500 (SPX) price chart. Late-week pivot.

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

The headline: Market seesaw continues.

The fine print: Last week’s Consumer Price Index (CPI) and Producer Price Index (PPI) releases both showed inflation increased from May to June (and remained near four-decade highs), but on Friday the June retail sales reading topped expectations at 1%.

The number: 15, the number of weeks since the SPX has posted back-to-back up weeks.

The move: August crude oil futures (CLQ2) closed out the week by jumping a little more than $7 after falling to $90.56/barrel on Thursday—a low that represented a nearly exact 50% retracement of their December–June rally.

The scorecard: Large caps held up best last week, while growth and small caps gave up the most ground:

US stock index performance table for week ending 7/15/22. 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 (+0.01%), utilities (-0.2%), and information technology (-0.4%). The weakest sectors were communication services (-3.4%), energy (-3.2%), and materials (-1.4%).

Stock movers: Pliant Therapeutics (PLRX) +159% to $23 on Monday, InMode (INMD) +16% to $26.73 on Tuesday. On the downside, Hannon Armstrong Sustainable Infrastructure Capital (HASI) -19% to $29.41 on Tuesday, Novavax (NVAX) -26% to $51.62 on Thursday.

Futures: Despite pivoting sharply higher off Thursday’s four-month low, August WTI crude oil ended the week down more than $7 at $97.59/barrel. Slumping August gold (GCQ2) dipped below $1,700/ounce last Thursday, closing Friday just above that threshold at $1,703.60/ounce. Biggest up moves: August natural gas (NGQ2) +17.9%, September Russian ruble (R6U2) +7.4%. Biggest down moves: September palladium (PAU2) -14.8%, September wheat (ZWU2) -12.9%.

Coming this week

The second week of earnings seasons features some airline and defense stocks, more financial names, and Netflix (NFLX):

Today: Prologis (PLD), International Business Machines (IBM)
Tuesday: Lockheed Martin (LMT), Hasbro (HAS), Citizens Financial Group (CFG), Halliburton (HAL), Johnson & Johnson (JNJ), Silvergate Capital (SI), Cal-Maine Foods (CALM), Netflix (NFLX), J.B. Hunt Transport Services (JBHT)
Wednesday: Baker Hughes (BKR), Abbott Laboratories (ABT), CSX (CSX), United Airlines (UAL), Crown Castle International (CCI), Alcoa (AA)
Thursday: American Airlines (AAL), Danaher (DHR), Travelers (TRV), AutoNation (AN), D.R. Horton (DHI), Fifth Third Bancorp (FITB), AT&T (T), Philip Morris (PM), Union Pacific (UNP)
Friday: HCA Healthcare (HCA), Schlumberger (SLB), American Express (AXP), Verizon (VZ), Cleveland-Cliffs (CLF)

This week’s numbers include:

Today: NAHB Housing Market Index
Tuesday: Housing Starts and Building Markets
Wednesday: Existing Home Sales
Thursday: Leading Economic Indicators Index
Friday: S&P Global U.S. Manufacturing PMI (flash), S&P Global U.S. Services PMI (flash)

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

Thursday pivot

Bullish momentum in equities has been elusive this year, but last Thursday was conspicuous in that both the stock market and crude oil made multi-week or multi-month lows before reversing to close near their highs of the day, and then followed through to the upside on Friday.

Whether that momentum will carry into this week—or longer—remains to be seen. In the past, when the SPX has made similar pullbacks,1 it was higher one week later 61% of the time. (The last time the index was in a similar position was on June 15.)

Longer term, however, Morgan Stanley Wealth Management pointed out last week that given the still-strong labor market and resilient corporate and consumer spending (remember last week’s retail sales number), the Fed is unlikely to take its foot off the rate-hiking gas any time soon. That, they argue, could potentially translate into additional (5-10%) downside for the US stock market, with “stagflation” (slower growth paired with continued high inflation) a more likely economic scenario than imminent recession.2


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1 Performance reflects S&P 500 (SPX) daily prices, December 1959–July 2022. The referenced pullback pattern models the SPX from July 8–15, 2022 as follows: four consecutive days with both lower lows and lower closes, followed by a day with a lower low, followed by a day that closes above the open as well as the previous day’s close (112 previous instances). Supporting document available upon request.
2 Is Now the Time to Buy the Market Bottom? 7/13/22.

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