Market bounces back

06/10/19
  • Biggest S&P 500 up week since last November
  • Rate-cut hopes more than offset tepid jobs report, more trade threats
  • This week: Inflation, retail sales, and Mexican trade

May? What about May?

We’re only one week into June, but the US stock market has already erased more than half of what it lost during last month’s mini-rout.

If you just skimmed the headlines, though, you may have been a little puzzled about the bullishness. A week that began with China asserting it wouldn’t “back down” to the US on trade1 and ended with a surprisingly weak employment report turned out to be the S&P 500’s (SPX) best week in more than six months.

S&P 500 (SPX), 3/6/19–6/7/19. S&P 500 (SPX) price chart. Rebound off retracement level.

Source: Power E*TRADE


Oh, and there was also the news that the US was going to look into possible antitrust violations by Facebook (FB), Alphabet (GOOGL), and Apple (AAPL), 2 which slammed all of their stocks on Monday and helped drive the SPX to a nearly two-month low.

But lo and behold, on Tuesday came headlines that China believed the trade standoff should be resolved via “dialogue,” and Federal Reserve Chairman Jerome Powell stoked hope of future Fed rate cuts in a speech at a Chicago Fed conference (see “Word on the Street,” below).

And a good-old-fashioned “short squeeze” appeared to be on.

Finally, Friday’s jobs number produced a classic head-fake. Stock index futures initially turned negative after the release, but quickly jumped back into the green amid speculation that the report’s weakness—only 75,000 new jobs created last month—increased the odds of a Fed rate cut. The SPX closed Friday with its second 1%-plus day of the week, and a nearly picture-perfect four-day rebound off its 38.2% retracement level.

Here’s how the major US indexes stacked up:

US stock index performance table for week ending 6/7/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector breakdown: The strongest S&P 500 sectors last week were materials (+9.1%), information technology (+5.9%, with some strong contributions from rebounding semiconductor stocks), and consumer staples (+5.2%). The weakest sectors were communication services (+1%), real estate (+2.7%), and utilities (+3%).

Power moves: On Monday, Mirati Therapeutics (MRTX) jumped +31.5% to $89.20 and Cypress Semiconductor (CY) rallied +24% to $22.07. Pivotal Software (PVTL) tumbled -41.5% to $10.88 on Wednesday.

On Thursday, La Jolla Pharmaceuticals’ (LJPC) +92.5% moonshot pumped up its stock price to double digits ($10.24), while At Home Group’s (ATHM) -57% breakdown dropped its to single digits ($7.50).

IPO all-star Beyond Meat (BYND) was beyond bullish in the wake of its first earnings report, soaring 41% to $138.65 on Friday.

Futures action: Last Wednesday July WTI crude oil (CLN9) fell below $51/barrel for the first time since early January, but a strong Thursday–Friday turnaround brought the market back to around $54.

Gold had one of its best weeks in a while, as the June futures contract (GCM9) notched five straight up days, hitting $1347.70/ounce on Friday before settling around $1,340.

Despite moving sideways from most of the week, surging June 10-year T-note futures (ZNM9) hit 127.25—a 21-month high for the market—on Friday.

Coming this week

Inflation numbers highlight a sparse early-week economic calendar, but Friday is fully loaded:

Monday: JOLTS              

Tuesday: Producer Price Index (PPI)

Wednesday: CPI, Atlanta Fed Business Inflation Expectations

Thursday: Import and Export Prices

Friday: Retail Sales, Industrial Production, Business Inventories, Consumer Sentiment

Earnings this week include:

●Monday: Thor Industries (THO)    

●Tuesday: H&R Block (HRB), HD Supply Holdings (HDS), Casey's General (CASY), Dave & Busters (PLAY), RH (RH)

●Wednesday: lululemon athletica (LULU)

●Thursday: Duluth Trading (DLTH), Broadcom AVGO

IPOs this week include gig-economy startup Fiverr (FVVR) on Thursday and “pet e-tailer” Chewy (CHWY) on Friday.

Go to the E*TRADE market calendar (logon 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.

Word on the Street

We don’t know how or when these issues will be resolved. As always, we will act as appropriate to sustain the expansion.

Federal Reserve Chairman Jerome Powell, commenting on the US–China trade war and the possibility of the Fed cutting interest rates.3

Second chances. Miss out on last week’s rally? Aside from how big it was, last week’s stock rally fit the market’s historical pattern of bouncing back the week after a four-week losing streak. But the analysis that appeared in this space a week ago also noted that the SPX’s path after that first week was sometimes less bullish.

Experienced traders know that exceptionally big moves often get at least partially reversed, even if the market ultimately moves further in the direction of the surge. Analyzing the SPX’s 47 other 4%-5% up weeks since 1960 shows a small tendency for the index to cool off a bit the following week: Its average one-week return was negative and it was higher the following Friday a little less than half the time.4

It all adds up to short-term traders likely having more twists and turns to look forward to.

 

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1 CNN.com. Global stocks sink after Beijing says it won't back down in trade war with US. 6/3/19.

2 Bloomberg.com. Google, Facebook and Apple Fall on Antitrust Scrutiny. 6/3/19.

3 Chicago Tribune. In Chicago speech, Powell boosts markets with hint Fed will cut rates if needed over trade disputes. 6/4/19.

4 Supporting document available upon request.

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