Rally interruptus

06/15/20
  • Market stumbles amid coronavirus uptick, Fed econ assessment
  • Tech tops: NDX rings up more records before pulling back
  • This week: Retail sales, housing data

Sometimes one day is all it takes.

Fueled by coronavirus “second-wave” worries and a cautious-sounding Federal Reserve, stocks took their biggest one-day hit in nearly three months last Thursday, sending the S&P 500 (SPX) nearly 6% lower and snapping a three-week winning streak—despite a Friday rebound:

Chart 1: S&P 500 (SPX), 3/20/20–6/5/20. S&P 500 (SPX) price chart. Jobs-surprise surge

Source: Power E*TRADE


The headline: Fed outlook, second-wave fears trip up stock rally.

The fine print: Although the economic outlook offered by the Federal Reserve last Wednesday was widely described as "gloomy," it was arguably more of a “bad news, good news” take on things. The bad: The central bank expects unemployment to remain high for the foreseeable future, and sees GDP contracting 6.5% this year. The good: It’s forecasting 5% GDP growth for 2021, and anticipates a 5.5% jobless rate in 20221—high, but less than half the current rate.

The number: +9.3%, the weekly increase in mortgage applications reported last Wednesday—a dramatic turnaround from the previous week’s -3.9% reading.

The quote: “We’re not thinking about raising rates. We’re not even thinking about thinking about raising rates.” Fed Chairman Jerome Powell, after the conclusion of last week’s FOMC meeting.2

The scorecard: Even though it was a down week, the Nasdaq 100 (NDX) racked up its sixth-straight record high before Thursday’s pullback, and reclaimed its traditional position of relative strength:

US stock index performance table for week ending 6/12/20. 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 (-2.1%), communication services (-2.8%), and consumer discretionary (-3.2%). The weakest sectors were energy (-11.3%), financials (-9.5%), and industrials (-8.2%).

Highlight reel: Nikola (NKLA) jumped 104% to $73.27 last Monday on its blockbuster first trading day, while Chesapeake Energy (CHK) plunged 66% to $23.75 on Tuesday—the latest wild swing in a stock that has had no shortage of them in recent months.

Futures action: August WTI crude oil (CLQ0) hit a three-month high of $40.69 last Monday, but slid 9% to $36.42/barrel on Thursday and closed Friday at $36.51. August gold (GCQ0) rebounded from a seven-week low on June 5 to close last week at  $1,737.30/ounce.

Last week's biggest futures up moves: July VIX (VXN0) +28.2%, September Ultra T-bond (UBU0) +4.4%, August gold (GCQ0) +3.2%. Last week's biggest futures down moves: July rough rice (ZRN0) -21.9%, August Brent crude oil (BQ0) -8.4%, July WTI crude oil (CLN0) -8.3%.

Coming this week

Along with the latest housing data, traders will be closely watching Tuesday’s retail sales number:

●Monday: Empire State Manufacturing Index

●Tuesday: Retail Sales, Industrial Production, Capacity Utilization, Business Inventories, NAHB Housing Market Index

●Wednesday: MBA Mortgage Applications, Building Permits, Housing Starts

●Thursday: Jobless Claims

●Friday: Current Account Q1

Earnings this week include:

●Monday: JinkoSolar (JKS), Centogene (CNTG), Huazhu Group (HTHT)

●Tuesday: Oracle (ORCL), Lennar (LEN)

●Wednesday: ABM Industries (ABM), Progressive (PGR), 58.com (WUBA)

●Thursday: Smith & Wesson (SWBI), Kroger (KR)

●Friday: Carmax (KMX), Jabil (JBL), MakeMyTrip (MMYT)

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 pulling back to recent breakout levels on Thursday, many airline stocks rebounded strongly on Friday—including Spirit (SAVE), which jumped 17%.

Semiconductor component maker Inphi (IPHI) fell 1.5% to $109.22 on Friday—the closest the high-flying stock has been to testing its recent breakout level since May 15 (see “When the chips are down…”).

 

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1 The New York Times. Fed Leaves Rates Unchanged and Projects Years of High Unemployment. 6/10/20.

2 CNBC.com. Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year. 6/10/20.

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