Market takes the middle road
- SPX dips, NDX gains, consolidation continues
- Inflation data fails to move market, oil bounce fades
- This week: Retail earnings, retail sales, housing numbers
If you were unaware the stock market has been spinning its wheels lately, last week should have made things crystal clear.
Not only was it the S&P 500’s (SPX) narrowest non-holiday weekly range since August 2021, the SPX barely traded beyond the boundaries of the previous Friday (May 5)—despite the release of eagerly anticipated inflation data:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.) Note: It is not possible to directly invest in an index.
The headline: Inflation lower but “sticky,” stocks tread water.
The fine print: Wednesday’s Consumer Price Index (CPI) and Thursday’s Producer Price Index (PPI) told similar stories: Inflation continued to cool in April, but not dramatically—which may help explain the market’s non-committal reaction to the data. But it may also reflect a wait-and-see attitude as the debt-ceiling deadline approaches (see “Market complacency,” below).
The move: Tucows (TCX) sold off 34.2% intraday on Tuesday but rallied to close down only 10.4%, then rallied 34.3% intraday on Wednesday before selling off to close up only 13.6%—and little changed from Monday’s close of $26.85.
The scorecard: The Nasdaq 100 (NDX) tech index closed lower on Friday, but not before hitting its highest level since August 18, 2022:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Sector returns: The strongest S&P 500 sectors last week were communication services (+4.3%), consumer discretionary (+0.6%), and consumer staples (-0.01%). The weakest sectors were energy (-2.2%), materials (-2%), and financials (-1.4%).
Stock movers: MoneyLion (ML) +50% to $19.70 on Monday (then -28% to $14.26 on Tuesday), Xometry (XMTR) +40% to $18.72 on Wednesday. Pra Group (PRAA) -30% to $23.95 on Tuesday, Sonos (SONO) -24% to $16.14 on Thursday.
Futures: June WTI crude oil’s (CLM3) rebound stalled, with the market ending last week down more than $1/barrel at $70.13. June gold (GCM3) ended an up-and-down slightly lower at $2,016.40. Week’s biggest up moves: July natural gas (NGN3) +5.3%, July hard red wheat (KWN3) +5.3%. Week’s biggest down moves: May Micro bitcoin (MBTK3) -12.6%, May Micro ether (METHK3) -12.3%.
Coming this week
This week kicks off the retail portion of earnings season:
●Monday: Monday.com (MNDY), Tower Semiconductor (TSEM), Voxx (VOXX), XP (XP)
●Tuesday: Home Depot (HD), Keysight Technologies (KEYS)
●Wednesday: Target (TGT), TJX (TJX), Copart (CPRT), Cisco (CSCO), Sociedad Quimica y Minera (SQM), Take-Two Interactive Software (TTWO)
●Thursday: Alibaba (BABA), Canadian Solar (CSIQ), Eagle Materials (EXP), Walmart (WMT), Applied Materials (AMAT), Ross Stores (ROST)
●Friday: Deere (DE), Foot Locker (FL)
This week’s numbers include:
●Monday: Empire State Manufacturing Index
●Tuesday: Retail Sales, Industrial Production, Capacity Utilization, NAHB Housing Market Index
●Wednesday: Housing Starts and Building Permits
●Thursday: Existing Home Sales, Leading Economic Indicators Index
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
Since mid-April, most market volatility barometers—including the Cboe Volatility Index (VIX)—have loitered near their lowest levels of the past 12–18 months. As students of the VIX know, stock sell-offs tend to trigger VIX rallies, while stock uptrends (and, sometimes, trading ranges) tend to produce lower, “complacent” VIX readings. The implication: Volatility calm sometimes precedes the market storm.
Higher volatility simply means “more price movement”—it doesn’t imply anything about the direction prices take—but these days, any discussion of potential volatility seems to return to the looming debt showdown.
Are traders and investors discounting the possibility of debt-ceiling turmoil? The stock market is still much closer to its year-to-date highs than its lows. Although Morgan Stanley & Co. analysts don’t think a US debt default is the base-case scenario, they point out there are different ways the debt-ceiling debate could play out—even if it is, technically, resolved before the “X-Date” deadline—and most of them have the potential to trigger higher market volatility.1
It’s no easier to time a trading range than it is a trend, but traders would be wise to avoid the complacency that can accompany a “boring,” low-volatility market.
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1 MorganStanley.com. Debt Ceiling Uncertainty and Financial Markets. 5/10/23.