Market coasts into August

08/02/21
  • Broad market sags, small caps bounce back
  • Fed sits tight, GDP misses expectations
  • This week: Jobs report, busiest week of earnings yet

Given all the high-profile earnings and economic data that crossed the wire last week, it may be a little surprising that the US stock market closed out July by trading mostly sideways—even if it did hit a couple of new records along the way.

But then again, the market likes to surprise.

After a cluster of megatech earnings, a “we’re staying the course” Fed announcement, and a weaker-than-anticipated Q2 GDP reading all failed to push the market notably higher or lower, what would have been a small weekly gain turned into a loss when the S&P 500 (SPX) slid 0.5% on Friday:

Chart 1: S&P 500 (SPX), 6/9/21–7/30/21. S&P 500 (SPX) price chart. Sideways week.

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


The headline: Market ends hot July with cool-down.

The fine print: Despite last week’s rangebound trading and net loss, the US market notched its sixth-straight up month and posted one of its best year-to-date returns through July of the past six decades, even as GDP surprised to the downside and inflation continued to increase.

The number: 6.5%, the first estimate of Q2 GDP released last Thursday—strong, except that the market was looking for something in the 8% neighborhood. The market rallied to a new record intraday high, but had to settle for its second-highest close.

The scorecard: Slumping small caps snapped back last week, as the Russell 2000 (RUT) was the only major US index to gain ground:

US stock index performance table for week ending 7/30/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

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


Sector roundup: The strongest S&P 500 sectors last week were materials (+2.8%), energy (+1.6%), and financials (+0.7%). The weakest sectors were consumer discretionary (-2.6%), communication services (-1%), and information technology (-0.8%).

Highlight reel: On Monday MicroStrategy (MSTR) +26% to $682.5, LendingClub (LC) +48% to $24.02 on Thursday. On the downside, KE Holdings (BEKE) -28% to $24.44 on Monday, Cassava Sciences (SAVA) -24% to $103.35 on Thursday.

Futures action: September WTI crude oil (CLU1) edged higher to close last week at a 13-day high of $73.95/barrel. After jumping to a two-week high of $1,832.60/ounce on Thursday, August gold (GCQ1) pulled back to close Friday at $1,812.60.

Coming this week

The first week of the new month peaks with Friday’s jobs report:

Today: Markit Manufacturing PMI, Construction Spending, ISM Manufacturing PMI
Tuesday: Factory Orders, Vehicle sales
Wednesday: ADP Employment Change, Markit Services PMI, ISM Non-Manufacturing PMI
Thursday: Challenger Job Cuts, Balance of Trade
Friday: Employment Report, Wholesale Inventories, Consumer Credit Change

There’s a little bit of everything in what is so far the busiest week of earnings season:

Today: Arista Networks (ANET), US Concrete (USCR), SolarEdge (SEDG), Take-Two Interactive Software (TTWO), Tower Semiconductor (TSEM), NXP Semiconductor (NXPI), Wynn Resorts (WYNN)
Tuesday: Phillips 66 (PSX), Activision Blizzard (ATVI), Alibaba (BABA), Verisk (VRSK), Amgen (AMGN), Occidental Petroleum (OXY), Ralph Lauren (RL), Clorox (CLX), Cardlytics (CDLX), ConocoPhillips (COP), Match Group (MTCH), LGI Homes (LGIH)
Wednesday: AMC Entertainment (AMC), Electronic Arts (EA), Royal Caribbean Cruises (RCL), CVS Health (CVS), Vulcan Materials (VMC), Kraft Heinz (KHC), General Motors (GM), ETSY (ETSY), Q2 (QTWO), Uber (UBER)
Thursday: Alarm.com (ALRM), Beyond Meat (BYND), Carvana (CVNA), Kellogg (K), Dropbox (DBX), Yeti (YETI), Yelp (YELP), Square (SQ), Regeneron (REGN)
Friday: AMC Networks (AMCX), Lear (LEA), Norwegian Cruise Line (NCLH), Canopy Growth (CGC)

IPOs include:

Wednesday: Worksport (WKSP), Better Being (BBCO)
Thursday: Cadre Holdings (CDRE), Weber (WEBR), European Wax Center (EWCZ), WCG Clinical (WCGC)  

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

The first seven months

Last month marked the ninth time out of the past 10 years that the SPX gained ground in July—quite a departure from the month’s tendency for tepid returns in days gone by.

July’s 2.3% gain also pushed the SPX’s year-to-date return to 17%, making it the 10th-strongest return through seven months since 1960:

Best S&P 500 year-to-date returns through July, 1960-2021.

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


July also marked the SPX’s ninth-straight month with a new all-time high and its 13th positive month out of the past 16.

The market may have blown past virtually every historical or seasonal benchmark so far this year, but it’s still interesting to look at what the market has done in the past after its strongest January-July returns.  After the nine other high-octane first seven months, the SPX fell in August six times, and the -0.8% average return for these Augusts was well below the 61-year average of 0.3%.1

 

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1 Reflects S&P 500 (SPX) monthly price data, 12/31/59–7/30/21. Supporting document available upon request.

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