Market hits glass ceiling

03/11/19

●Market posts biggest pullback of the year

●Trade deficit swells, fewer new jobs than expected but unemployment shrinks

●This week: Retails sales, inflation data, Quadruple-Witching Friday

In case you’ve forgotten what they’re like, yes, that was a pullback.

A week that started with the S&P 500 (SPX) hitting its highest level in nearly five months also turned out to be its biggest down week of the year, and marked its first five-day losing streak since November:

S&P 500 (SPX), 1/2/19–3/11/19. S&P 500 (SPX) price chart. Pullback week.

Source: Power E*TRADE


After wavering around the resistance level of its October-December highs for several days (see “Trade talks put focus on pullback”), last week’s retreat dropped the SPX to a 17-day low against a backdrop of economic news that fueled fears of slowing global growth:

●Monday: China lowered its 2019 GDP forecast to its lowest level in nearly 30 years (6–6.5%).1

●Wednesday: US trade deficit hit a 10-year high.2

●Thursday: The European Central Bank (ECB) cut its growth forecast from 1.7% to 1.1%.3

●Friday: Although the US unemployment rate shrank from 3.9% to 3.8%, the number of new jobs for February missed estimates by a wide margin (20,000 vs. 175,000).

Even before the 8:30 a.m. ET jobs report, US stock index futures were in the red on Friday, blowback from a 4.4% sell-off in China’s Shanghai Composite stock index.

Overall, though, it was a fairly run-of-the-mill downturn. And interestingly, US indexes made their lows early on Friday and rallied to end the day with small losses—a possible manifestation of bullishness on “bad” news because the market believes it will keep the Fed in pause mode?

The tech-centric Nasdaq 100 (NDX) held up best last week among US indexes, while the Russell 2000 (RUT) took the biggest hit, although it remains the year-to-date leader:

US stock index performance table for week ending 3/8/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Power E*TRADE


Sector action: Can you say “defensive mode?” The top-performing S&P 500 sectors were utilities (+0.4), real estate (+0.3%), and communications services (-0.3%). The worst-performing sectors were health care (-4%), energy (-3.9%), and industrials (-3.1%).

Highlight reel: On Thursday Resideo Technologies (REZI) dropped 26.71%, while Rosetta Stone (RST) jumped +30.13%. On Friday, DXP Enterprises (DXPE) rallied 33%, and NV5 Global (NVEE) dropped 32%.

Futures watch: After waffling most of last week, April WTI crude (CLJ9) fell more than 3% intraday on Friday, but scrambled higher to end the day down around 1% and back above $56/barrel. April gold (GCJ9) spent most of the week testing its January lows around $1,282/ounce before jumping more than 1% on Friday to around $1,300.

Coming this week

We start with a bang—today’s retail sales number—and end with “Quadruple Witching” expiration (stock options, stock index futures, index options, single-stock futures) on Friday:

Monday: Retail Sales, Business Inventories             

Tuesday: NFIB Small Business Optimism Index, CPI

Wednesday: Durable Goods Orders, PPI, Atlanta Fed Business Inflation Expectations, Construction Spending, E-Commerce Retail Sales

Thursday: Import and Export Prices, New Home Sales          

Friday: Quadruple Witching, Industrial Production, Consumer Sentiment, JOLTS

Earnings this week include:

Monday: ADT (ADT), Amphastar Pharmaceuticals (AMPH), Ascena Retail Group (ASNA), Coupa Software (COUP), Stitch Fix (SFIX)

Tuesday: Dick's Sporting Goods (DKS), GDS Holdings (GDS), Momo (MOMO), Guardant Health (GH), MongoDB (MDB), ZTO Express (ZTO)

Wednesday: Cloudera (CLDR), Domo (DOMO), Tailored Brands (TLRD), Williams-Sonoma (WSM)

Thursday: Dollar General (DG), Adobe Systems (ADBE), Broadcom (AVGO), DocuSign (DOCU), Huazhu Group (HTHT), Jabil (JBL), Overstock.com (OSTK)

Friday: Syneos Health (SYNH), Buckle (BKE)

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

Grading the market: Still an A. Last week’s -2.2% SPX decline may have been a hair larger than the average losing week over the past 12 months (-2.1%), but in terms of YTD performance, the market is still doing pretty well: The SPX’s 9.42% YTD return as of Friday was better than 92% of all other years since 1950. That grade may not get you paraded in front of the rest of the class, but it sure won’t trigger a call to your parents, either.

Some traders may argue the fact that the market is still historically strong at this point in the calendar suggests a deeper pullback is in the cards. For the record, the last two times this year the SPX’s YTD return fell below the 90th percentile after spending at least five days above it (January 29 and February 14), the index turned higher.

 

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1 Bloomberg.com. China Lowers Growth Target and Cuts Taxes as Economy Slows. 3/4/19.

2 Reuters: U.S. trade deficit jumps to 10-year high in 2018. 3/6/19.

3 The Guardian. ECB unveils measures to revive eurozone as it cuts growth forecasts – as it happened. 3/7/19.

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