Tech fuels latest run
- New highs for SPX and NDX, jobs data rebounds
- Tech leads, small-caps lag, crude keeps bubbling
- This week: FOMC minutes (aka “Inflation Watch”), service economy data
Coming off the three-day holiday weekend that unofficially kicks off the heart of summer, stocks have yet to show signs of “doldrums,” as tech strength and an apparent downtick in inflation worries helped propel the US market to its second-straight up week and new all-time highs.
The SPX topped 4,300 for the first time last week, hit a new record high or closing price each day, and launched some early fireworks with a strong gain after Friday’s jobs report:
Source: Power E*TRADE
The headline: Stocks push to new highs as jobs market bounces back.
The fine print: The immediate reaction to the employment report headline—850,000 new jobs vs. 706,000 expected—may have said as much about the market’s current level of inflation anxiety as anything else. On May 7, when the jobs numbers missed estimates badly, the SPX rallied to a new record high, presumably because inflation-anxious investors didn’t have to worry about an overheating employment market fueling the fire (for a day, anyway—the market pulled back the next three days). On Friday, the market was apparently less concerned about potential inflation pressures, rallying to a new record despite stronger-than-anticipated jobs growth.
The number: 8%, the increase in pending home sales in May, a major surprise considering the consensus estimate was for a 0.8% decline (see “Housing and real estate shifting gears?” below).
The scorecard: Like the SPX, the Nasdaq 100 (NDX) set new records every day last week—and the tech index also wrapped up its best two weeks since April and climbed out of the year-to-date return basement in the process. Meanwhile, the small-cap Russell 2000 (RUT) saw its lead for the year shrink to almost nothing:
Source: Power E*TRADE
Sector roundup: The strongest S&P 500 sectors last week were information technology (+3.3%), health care (+2.09%), and consumer discretionary (+2.08%). The weakest sectors were energy (-1.1%), financials (-0.1%), and real estate (unchanged).
Highlight reel: Cerevel Therapeutics (CERE) +136% to $29.69 on Tuesday, Newegg (NEGG) +78% on Wednesday. On the downside, Cel-Sci (CVM) -45% to $13.69 on Monday, Altimmune (ALT) -38% to $9.85.
Futures action: August WTI crude oil (CLQ1), which has made a new closing or intraday high on 30 of the past 31 trading days, popped to $76.22/barrel last Thursday before ending the week at $75.16. After falling to a 10-week low of $1,750.10/ounce last Tuesday, August gold (GCQ1) rebounded to close Friday at $1,783.30. Biggest up moves: July ether (ERN1) +12.8%, November canola (RSX1) +12.5%. Biggest down moves: September coffee (KCU1) -3%, September rice (ZRU1) -2.7%.
Coming this week
Minutes from the Fed’s June FOMC meeting highlight this week’s economic calendar:
●Today: Markit Services PMI (final), ISM Non-Manufacturing Index
●Wednesday: JOLTs (job openings), FOMC minutes
●Thursday: Consumer Credit
●Friday: Wholesale Inventories
This week’s earnings include:
●Today: Smart Global (SGH)
●Wednesday: WD-40 (WDFC), MSC industrial (MSM)
●Thursday: Levi Strauss (LEVI), PriceSmart (PSMT)
●Friday: AZZ (AZZ)
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
Housing and real estate shifting gears?
Last week’s housing-market data reinforced one of the dominant themes of the past few months—soaring home prices—but upended another.
On Tuesday the S&P Case-Shiller Home Price Index registered its biggest year-over-year increase (14.6%) in its 30-year history,2 extending the trend that kicked in as the pandemic was upending live-work arrangements across the country.
But the huge monthly increase in pending home sales reported a day later was a major break from the downtrend that had been in effect since last September’s multi-year high, a decline that highlighted how increasingly tight the market was becoming as pent-up pandemic demand overwhelmed supply: high prices, on average, for homes that were selling, but sales were slow.
Until two months ago, homebuilder stocks had benefited from the boom. But after rallying 221% from late-March 2020 to early May 2021, the S&P 500 Homebuilder Index retreated more than 12% into mid-June. Since then, though, the index has rebounded a little more than 5%.
While some market watchers think housing is overheated, others argue the recent evidence of a loosening market could open the door to continued growth. In addition to the sales increase, housing-critical commodities like copper and (especially) lumber have pulled back notably as the pandemic supply-chain disruptions that may have contributed to their rallies (and increased home prices) have at least partially resolved. More housing inventory came on the market in June.3
Meanwhile, Real Estate Investment Trusts (REITs) have been on a tear, with both the S&P US and Global REITs just off the all-time highs they hit last month.4 Our Morgan Stanley colleagues recently highlighted the REIT space in making a case for sustained strength in housing, citing (among other factors) friendly mortgage rate, demographic, and work-from-home trends.
1 National Association of Realtors. Pending Home Sales. 6/29/21.
2 MarketWatch.com. Home price growth hits record high—but homeowners shouldn’t celebrate just yet. 6/30/21.
3 CNBC.com. Epic housing shortage may finally be starting to lift, as surprising number of new listings hit market in June. 7/1/21.
4 S&P Global (www.spglobal.com). S&P Global REIT and S&P United States REIT. 7/2/21.