Resilient market closes strong

05/11/20
  • Energy, tech spearhead rally—Nasdaq back in black for the year
  • Jobs report was bad, but it could have been worse
  • This week: Retail sales, inflation numbers, industrial production

At this point, maybe it shouldn’t be a surprise.

The highest unemployment rate since the Great Depression, renewed trade-war worries, and a continued stream of “Reply Hazy, Ask Again Later” earnings—and a big up week for US stocks.

The S&P 500 (SPX)—again—shrugged off harsh reminders of the COVID-19 economy to break a two-week losing streak and post its highest weekly close in more than two months:

Chart 1: S&P 500 (SPX), 3/10/20–5/8/20. S&P 500 (SPX) price chart. Closed on a high note.

Source: Power E*TRADE


The numbers: 20.5 million, the number of jobs lost last month. The unemployment rate more than tripled to 14.7%.

The headline: Jobs report terrible—but not as terrible as feared.

The fine print: Analysts had forecasted more than 21 million job losses and an unemployment rate above 16%—hence the market’s horns-out reaction (SPX +1.7% on Friday) to the worst numbers since before WWII. On the downside, March’s job-loss number was revised up from 701,000 to 870,000.

The move: +40%, LivePerson’s (LPSN) rally last Tuesday after the communications tech company released earnings that showed a big uptick in business during the lockdown (see “Right place at the right time?”).

The quote: “It’s a leading indicator, and it’s saying that we’re coming out of recession.” Duke University finance professor Campbell Harvey, on the positive yield curve and his prediction of a late-2020, early-2021 end to the recession.1

The scorecard: It seemed like old times last week, as tech provided much of the fuel for the market’s rally and the Nasdaq 100 (NDX) pushed back into positive territory for the year:

US stock index performance table for week ending 5/8/20. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector roundup: The strongest S&P 500 sectors last week were energy (+8.1%, crude oil kept rallying), information technology (+6.6%), and consumer discretionary (+4.4%). The weakest sectors were utilities (+0.6%), consumer staples (+0.9%), and financials (+1.1%).

Highlight reel: On Monday Stemline Therapeutics (STML) surged 155% to $12.11 on news it was being acquired by Italian pharmaceutical and diagnostics company Menarini Group. On Wednesday Inogen (INGN) fell 25% to $39.50.

Futures action: Despite a Thursday pullback, June WTI crude oil (CLM0) rallied more than 25% last week, closing Friday at $24.74/barrel. June gold (GCM0) continued to stagnate, ending a congested week  at $1,713.90.

Last week's biggest futures up moves: June RBOB gasoline (RBM0) +24.5%, June WTI crude oil (CLM0) +25.1%, July Brent crude oil (BN0) +16.7%. Last week's biggest futures down moves: June VIX (VXM0) -13.5%, July sugar (SBN0) -6.2%, June natural gas (NGM0) -3.3%.

Coming this week

Friday’s retail sales number highlights a quieter week on the economic calendar:

●Tuesday: NFIB Small Business Optimism Index, Consumer Price Index (CPI)

Wednesday: Producer Price Index (PPI)

●Thursday: Imports and Exports, Initial Jobless Claims

●Friday: Empire State Manufacturing Index, Retail Sales, Industrial Production and Capacity Utilization, Consumer Sentiment Index

Earnings this week include:

●Monday: ON Semiconductor (ON), Cardinal Health (CAH), Cardlytics (CDLX), Tencent (TME), Eldorado Resorts (ERI), GW Pharmaceuticals (GWPH), Intercept Pharmaceuticals (ICPT), Marriott International (MAR)

●Tuesday: Adaptive Biotechnologies (ADPT), Duke Energy (DUK), XP (XP)

●Wednesday: Alibaba (BABA), Jack in the Box (JACK), Cisco Systems (CSCO), Dillard's (DDS), Macy's (M), NetEase (NTES)

●Thursday: Applied Materials (AMAT), Denny's (DENN), Qiwi (QIWI)

●Friday: VF (VFC), Draftkings (DKNG), JD.com (JD)

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.

All the news that (doesn’t) fit

Anticipation over Friday’s jobs report understandably swept much of last week’s other news under the rug, so just in case you missed it:

●The US Treasury announced it would issue $3 trillion in debt by the end of June.2

The word “unprecedented” has been thrown around a lot in recent weeks, and this bit of news certainly fits the bill. It means the government is going to borrow an unprecedented $3 trillion this quarter (by selling bonds) to help pay for the unprecedented economic stimulus programs that it’s already launched.

For some perspective, in 2019 the government borrowed $1.28 trillion—for the entire year.

Market Mover Update: Airline stocks finally got a little air under their wings on Friday, amid reports of heavy inflows into airline (and energy) ETFs.3 Delta (DAL) rallied 4.8% on Friday (see “Hard landing”).

 

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1 MarketWatch.com. Opinion: Economic expert with perfect record calling recessions is betting this one will be over by the end of 2020. 4/30/20.

2 Bloomberg.com. Mnuchin to Issue $3 Trillion in Debt After Virus Hobbles Economy. 5/4/20.

3 CNBC.com. Investors are betting two of the hardest hit groups—energy and airlines—have bottomed. 5/7/20.

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