Market turns cautious

06/29/20
  • Stocks step back as virus worries outweigh economic data
  • Regulators, Fed send financials on a wild ride
  • This week: Jobs report, manufacturing data, Fourth of July holiday

Last week a rising tide of COVID-19 cases faced off against more didn’t-think-they’d-be-that-strong economic data, with virus concerns appearing to gain the upper hand by Friday.

Despite gaining ground three days out of five, the S&P 500 (SPX) closed out the last full week of June in the lower half of the range it’s occupied since its mid-month pullback and bounce:

Chart 1: S&P 500 (SPX), 3/19/20–6/26/20. S&P 500 (SPX) price chart. Sagged within range.

Source: Power E*TRADE


The headline: Stocks retreat amid virus outbreaks.

The fine print: A “second wave” (and the possibility of another lockdown) has been the market’s primary worry for since the US began efforts to reboot its economy. It’s still too early to know what proportions the current uptick will take, but US cases hit a new one-day high last Thursday, with just four states (California, Florida, Texas, and Arizona) accounting for more than half the nationwide total. Both Texas and Florida—the second- and fourth-largest state economies—halted their reopenings.1

The numbers: +15.8%, the increase in durable goods orders last month, which trounced the +10% estimate. Personal income for May was also much better than expected, coming in at -4.2% instead of -6.2%.

The scorecard: For the second week in a row, tech and small-caps outperformed large-caps:

US stock index performance table for week ending 6/26/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source (data): Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were information technology (-0.4%), consumer discretionary (-0.7%), and consumer staples (-1.9%). The weakest sectors were energy (-6%), financials (-4.3%), and communication services (-3.9%).

Highlight reel: On Tuesday Translate Bio (TBIO) jumped 47% to $23.87—then gave back 21% on Friday to close at $19.48. Renewable Energy Group (REGI) fell -20.5% on Wednesday, while Inovio Pharmaceuticals (INO) rallied 31% to $31.25 on Thursday.

Futures action: Gold pushed to its highest level since October 2012 last week, but couldn’t quite break through resistance. August gold futures (GCQ0) closed Friday at $1,780.30/ounce after tagging $1,796.10 on Wednesday. August WTI crude oil (CLQ0) rallied to $41.63/barrel mid-week, but pulled back to $38.49 by Friday, retreating with the stock market.

Last week's biggest futures up moves: July Oats (ZON0) +7.5%, July lumber (LBSN0) +2.2%, July Coffee (KCN0) +2%. Last week's biggest futures down moves: August Natural gas (NGQ0) -11.6%, August RBOB gasoline (RBQ0) -10.4%, July hogs (HEN0) -6.6%.

Coming this week

US stock exchanges will be closed Friday for the Fourth of July, but the calendar is jam-packed until then, peaking with Thursday’s monthly jobs report:

●Monday: Pending Home Sales

●Tuesday: S&P Case-Shiller Home Price Index, Chicago PMI, Consumer Confidence

●Wednesday: Vehicle Sales, ADP Employment Change, Construction Spending, ISM Manufacturing Index

●Thursday: Employment report, Jobless Claims, Factory Orders, Trade Balance

●Friday: Happy Independence Day

Earnings this week include:

●Monday: Carnival (CUK), Micron Technology (MU)

●Tuesday: Conagra Brands (CAG), FedEx (FDX)

●Wednesday: Constellation Brands (STZ), Huazhu Group (HTHT), General Mills (GIS), Macy's (M)

●Thursday: Lindsay (LNN), Korn Ferry (KFY)

Go to the E*TRADE market calendar (login 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.

Market Mover Update: After an explosive seven-day rally, Horizon Therapeutics (HZNP) didn’t hit a record high for the first time in four days on Friday. High-flying gene-editing stocks will start this week having pulled back (to varying degrees) from last week’s spike highs.

After getting a bullish momentum injection last Thursday when government regulators decided to relax certain trading restrictions on banks (including the Volcker Rule), the financial sector reversed course on Friday after the Federal Reserve released its annual bank “stress test” results. The Fed found most banks were in solid shape, but is prohibiting them from engaging in stock buybacks and requiring them to cap their dividends.2

Say hi to July. Finally, maybe the prospect of the Fourth of July holiday tends to puts traders in a good mood, because for the past 60 years the first trading day of July (this Wednesday) has been one of the SPX’s most bullish days of the early summer: Since 1960, the SPX has closed higher on it 44 out of 60 times, 17 times in the past 20 years, and the last nine years in a row.

 

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1 CNBC.com. 5 things to know before the stock market opens Friday. 6/26/20.

2 MarketWatch.com. Bank Stocks Are Getting Battered. Here’s Why It Might Be Time to Buy. 6/26/20.

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