No small feat

12/14/20
  • Small caps hang tough despite down week for broad market
  • Energy powers on as crude oil cruises
  • This week: FOMC announcement, retail sales

To say last week was a down week for the stock market would be accurate, but it also ignores what was probably the most interesting aspect of a fairly dull stretch of trading: The continued strength of small caps, as the Russell 2000 (RUT) punched out a gain despite the broad market’s pullback.

Not that the week was all pullback. The S&P 500 (SPX) closed at a record high on Tuesday and followed up with an all-time intraday high on Wednesday before turning lower:

Chart 1: S&P 500 (SPX), 8/31/20–12/11/20. S&P 500 (SPX) price chart. More records, then a pullback.

Source: Power E*TRADE


The headline: Stocks slump overall, but small caps hold their ground.

The fine print: Rising COVID cases and wobbly stimulus negotiations continued to be the major clouds hanging over the market last week, while the Food and Drug Administration’s (FDA) push to approve vaccines for emergency use provided some measure of sunshine for bulls.1

The number: 853,000, the higher-than-expected number of new weekly unemployment claims.

The move: QuantumScape (QS) rallied 106% Monday–Wednesday last week before pulling back.

The scorecard: Don’t look now, but the RUT has the second-biggest year-to-date gain among major US indexes:

US stock index performance table for week ending 12/11/20. 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 energy (+0.9%), communication services (-0.1%), and consumer staples (-0.3%). The weakest sectors were real estate (-3%), financials (-1.8%), and information technology (-1.7%).

Highlight reel: On Wednesday Rocket Pharmaceuticals (RCKT) rocketed +83% to $58.74, while Arcturus Therapeutics (ARCT) slid 19% to $100.08 on Tuesday.

Futures action: January WTI crude oil (CLF1) broke out of a consolidation on Thursday—tagging $47.74/barrel, its highest level since March 5—but dipped on Friday to close the week at $46.57. February gold (GCG1) pulled back after testing resistance at its September-November lows early last week, closing Friday at $1,843.60/ounce.

Last week's biggest futures up moves: January lumber (LBSF1) +16.4%, March oats (ZOH1) +10.3%, March hard red wheat (KWH1) +7.1%. Biggest down moves: January orange juice (OJF1) -6.4%, December bitcoin (BTCZ0) -5.5%, February hogs (HEG1) -5%.

Coming this week

An FOMC announcement and retail sales highlight this week’s economic calendar:

Monday: Consumer Inflation Expectations

Tuesday: Import and Export Prices, Industrial Production, Capacity Utilization

Wednesday: Retail Sales, Business Inventories, NAHB Housing Market Index, FOMC announcement

Thursday: Housing Starts and Building Permits

Friday: Current Account, Leading Economic Indicators

This week’s earnings include:

Wednesday: Blue Bird (BLBD)

Thursday: Rite Aid (RAD), General Mills (GIS)

This week’s IPOs include:

Wednesday: ContextLogic (WISH), Upstart Holdings (UPST)

Thursday: Midwest Holding (MDWT)

Go to the E*TRADE market calendar for an up-to-date earnings schedule and complete list of splits, dividends, IPOs, and economic reports. The Active Trader Commentary also lists earnings announcements, IPOs, and economic report times each morning.

December being December

While rising COVID cases and stimulus deadlock may have some people more nervous than usual about any pullback blowing up into something bigger, last week’s stock market dip was very much in sync with the historical rhythm outlined in “Prepping for December.”

The following chart shows the SPX’s performance so far this month, along with the index’s average performance through the ninth trading day of all Decembers since 1958:

Chart 3: S&P 500 returns in the first nine days of December: 2020 vs. 1958-2019. Just another December pullback?

Source: Power E*TRADE


The market may have turned lower a little earlier than usual this year (green line), but it still followed the basic pattern of pulling back after a start-of-the-month rally.

Whether the market continues to follow the December script (which would imply a potential rebound sometime this week) is another matter. But so far, at least, there’s nothing out of the ordinary about what the market is doing, some gloomy headlines notwithstanding.

 

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1 Reuters. U.S. FDA 'working rapidly' on Pfizer COVID-19 vaccine decision. 12/11/20.

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