A quarter to remember

04/01/19
  • Late-March pullback fails to derail epic Q1 rally
  • Lyft (LYFT) IPO opens far above projected target range
  • Up this week: Jobs report, manufacturing data

That was one for the books.

A tech cool-down and a lingering hangover from the March 22 yield-curve inversion couldn’t prevent the US stock market from wrapping up one of its best Q1s on record: a 13.07% S&P 500 (SPX) return that marked the index’s biggest January-March gain since 1998, its sixth-biggest since 1950 (tied with 1986), and its best three months—period—since 2009.

S&P 500 (SPX), 12/21/18–3/22/19. S&P 500 (SPX) price chart. 13.07% Q1 gain

Source: Power E*TRADE


The SPX will kick off Q2 this week around 4% below its all-time high, having erased more than 80% of what it lost during its September–December sell-off. And while cautious traders may be looking for the market to pull back a bit after such an impressive run, history indicates strong first quarters typically end up being positive years.

An essentially sideways week saw all major US indexes notch modest gains, but there was a changing of the guard in terms of relative strength: A slowdown in the recent tech rally snapped the Nasdaq 100’s (NDX) streak of market-leading weeks at four, while the small-cap Russell 2000 (RUT) grabbed the top spot for the first time since February 22:

US stock index performance table for week ending 3/29/19. 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 industrials (+2.7%), materials (+1.9%), and consumer discretionary (+1.8%). The worst-performing sectors were utilities (-0.61%), communication services (-0.57%), and real estate (+0.8%).

Highlight reel: Communications equipment provider Avaya Holdings (AVYA) surged 33% on Monday amid reports it was considering a leveraged buyout from a private equity firm.1 On Tuesday, Bed Bath & Beyond (BBBY) jumped +22% as activist investors pushed sweeping changes at the retailer.2 Home furnishings had a rough week: At Home Group (HOME) shares tumbled -22% on Wednesday in the wake of an earnings miss, while RH (RH) fell -21% on Friday after the company painted a picture of a slow 2019..

On Friday, ride sharer Lyft (LYFT) began its life as a publicly traded company at $87.24—about $25 higher than its projected price from a couple of weeks ago—before closing at $78.29 (+8.7%).

Futures watch: After moving sideways for much of last week, May WTI crude oil (CLK9) rallied more than 1% on Friday, closing out its best quarter in a decade back above $60/barrel. April gold (GCJ9) suffered its second-biggest down day of the year (-1.4%) on Thursday on the way to settling Friday around $1,292/ounce.

Pushed by the decline in long-term interest rates, June 10-year T-note futures (ZNM9) rallied to a new contract high just shy of 125 before retreating a bit on Thursday and Friday to end the week around 124.25.

Coming this week

Welcome to the top of the month—manufacturing data warms up the week, and the jobs report kicks things into high gear on Friday:

Monday: Retail Sales, PMI Manufacturing Index, Business Inventories, ISM Manufacturing Index, Construction Spending

Tuesday: Durable Goods Orders

Wednesday: ISM Non–Manufacturing Index

Friday: Employment Situation (Jobs), Consumer Credit

Earnings this week include:                       

Monday: Cal-Maine Foods (CALM)

Tuesday: Walgreens Boots Alliance (WBA), Dave & Busters (PLAY), GameStop (GME)

Wednesday: Acuity Brands (AYI), Signet Jewelers (SIG)

Thursday: Constellation Brands (STZ), RPM (RPM)

Friday: Greenbrier (GBX)

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

I don’t see a US recession as particularly likely. The US is certainly experiencing slowing growth—that’s something that was long expected.

Former Federal Reserve Chairman Janet Yellen, speaking at the Credit Suisse Asian Investment Conference on March 25.3

April by the numbers. While “The yield curve–stock market showdown” noted the potential for April to be a little weaker than usual following exceptionally strong Q1s, April has traditionally been one of the more reliable bullish months of the year. Since 1960, the SPX has gained ground in April 71% of the time—a monthly winning percentage that trails only December. Nine out of the past 10 Aprils and 15 of the past 20 have been in the plus column.

April has tended to start with a pop, too: The first trading day of the month (today) has closed up 59.5% of the time, while the second has closed up 63% of the time.

 

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1 TheStreet.com. Avaya Soars on Report It's Considering a Leveraged Buyout. 3/25/19.

2 Barron’s. ‘Better Late Than Bankrupt.’ Bed Bath & Beyond Is a Ripe Target for Activist Investors. 3/27/19.

3 Financial Review. Janet Yellen says US recession is unlikely. 3/25/19.

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