Q2 follow-through

04/08/19
  • Small caps, tech pace market
  • Dow closes week above 26,000
  • This week: FOMC minutes, Q1 earnings season kicks off

And the train kept-a rollin.’

In the absence of any blockbuster news—but plenty of speculation—stocks continued their ascent at the outset of the new quarter, with the S&P 500 (SPX) climbing to within 1.7% of a new all-time record.

Before the market rallied to its highest levels since October 9 after Friday’s jobs report, stocks had gained ground amid a steady stream of headlines suggesting a US-China trade deal was once again within sight. (And a surprisingly good construction spending number on Monday may have helped the market get off on the right foot, too.)

S&P 500 (SPX), 1/2/19–4/5/19. S&P 500 (SPX) price chart. Less than 2% from record high

Source: Power E*TRADE


No one’s signed on the dotted line yet, but Chinese Vice Premier Liu He noted that the two countries had “reached new consensus,”1 and unlike similar episodes in the past, this time there was no rebuttal (as of Friday, anyway) disavowing the progress.

It appeared to be enough to keep a bid under stock prices during a mostly quiet week, and when Friday’s job report topped estimates—the US economy added 196,000 new jobs, and unemployment held steady at 3.8%—it may have alleviated some of the fear triggered by the previous month’s anemic job growth.

The small-cap Russell 2000 (RUT) led the market for a second straight week, a semiconductor power surge helped the Nasdaq 100 (NDX) to nail down second place, and the Dow Jones Industrial Average (DJIA) ended a week above 26,000 for just the second time this year:

US stock index performance table for week ending 4/5/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector action: The top-performing S&P 500 sectors last week were materials (+4.5%), financials (+3.3%), and consumer discretionary (+3.2%). The worst-performing sectors were consumer staples (-1%), utilities (-0.2%), and health care (+0.3%).

Highlight reel: After falling as much as 24% below its initial IPO-day price last week, Lyft (LYFT) shares got a ride the rest of the week, rallying nearly 13% off Tuesday’s low of $66.10 to close Friday at $74.45. Aerospace component manufacturer Triumph Group (TGI) jumped 12% on Friday after the company announced it was seeking to sell its Aerospace Structures unit.2

On the downside, media analytics company Comscore (SCOR) fell -30% on Monday after the company’s CEO and president both unexpectedly resigned,2 while medical device maker LivaNova (LIVN) shed -28% on Friday after releasing disappointing preliminary Q1 sales numbers.

Futures watch: On Friday, May WTI crude oil (CLK9) closed above $63/barrel for the first time since November 5. June gold (GCM9) retreated to support around its January and March lows (around $1,285/ounce) on Thursday, but reversed intraday to close higher and then follow through with another small gain on Friday to climb back to $1,296.

Coming this week

In addition to the release of FOMC minutes on Wednesday afternoon, Fed Chairman Jerome Powell will speak at the House of Representatives Democratic Caucus annual retreat Wednesday–Friday:                                                                          

Monday: Factory Orders

Tuesday: JOLTS

Wednesday: CPI, Atlanta Fed Business Inflation Expectations, FOMC Minutes, Jerome Powell at Democratic Caucus retreat

Thursday: Producer Price Index (PPI), Jerome Powell at Democratic Caucus retreat

Friday: Import and Export Prices, Consumer Sentiment, Jerome Powell at Democratic Caucus retreat

Q1 earnings will begin trickling in this week, including Delta Air Lines (DAL) on Wednesday. But kickoff officially occurs on Friday, when a quartet of big banks will give traders a chance to gauge the temperature of the financial sector and perhaps get a feel for what kind of weather the earnings season may bring as a whole:                                             

Monday: Legacy Housing (LEGH)

Tuesday: Shaw Comms (SJR), PriceSmart (PSMT), WD-40 (WDFC)

Wednesday: Delta Air Lines (DAL), MSC Industrial (MSM), Bed Bath & Beyond (BBBY)

Thursday: Commerce Bancshares (CBSH), Fastenal (FAST)

Friday: JPMorgan Chase (JPM), PNC (PNC), Wells Fargo (WFC), First Republic Bank (FRC)

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.

Word on the Street

Show me a country without any large, successful companies, and I will show you an unsuccessful country—with too few jobs and not enough opportunity as an outcome.

J.P. Morgan Chase CEO Jamie Dimon, in his annual letter to shareholders.4

Following the S&P trend. Say what you want about stocks not pausing to take a breath after a record Q1, by one measurement, at least, the stock market is arguably right around where it “should” be.

That’s because when the SPX closed at a new 107-day high of 2822.48 on March 15 (when it broke out above its October–December 2018 trading range highs), it was the first time it had made a high of that magnitude since September 20, 2018 (121 days).

After the 25 other times since 1960 that the SPX has made a new 107-day high after that long of a drought, its median gain 15 trading days later was 2.1%. As it turns out, Friday was 15 trading days after March 15, and the SPX ended the day 2.5% above the March 15 closing price—pretty much right in the ballpark of the typical historical return after similar breakouts.

Also, the SPX's 15-day, 2.1% median return after the breakouts was nearly three times the 0.72% median return for all 15-day periods since April 1958, which suggests the index has often had some extra bullish momentum for at least a few weeks after this type of long-term breakout.

At the 20-day mark (which the SPX will hit this Friday), the median post-breakout gain was 1.8%, still close to twice the SPX’s historical 20-day return of 1%, but slightly less than the 15-day return.5

 

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1 Bloomberg. Kudlow Sees No Letup in China Talks as Both Sides Cite Progress. 4/4/19.

2 MarketWatch. Scientific Games sub SciPlay files for IPO on Nasdaq. 4/5/19.

3 Crain’s Chicago Business. Two execs abruptly quit Comscore. 4/1/19.

4 JPMorgan Chase & Co. Annual Report 2018: Chairman & CEO Letter to Shareholders. 4/4/19.

5 Supporting document available upon request.

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