Hedging its bets

07/22/19
  • Stocks pull back after hitting new records last Monday
  • Econ data surprises to upside
  • This week: GDP, earnings season kicks into high gear

Although last week started with new records for the market, evidence that the US–China trade saga is far from over, along with some uncertainty about the Fed’s stance on interest rates, appeared to fuel a somewhat defensive mood on the Street.

Nonetheless, the S&P 500 (SPX) enters what promises to be a busy week of earnings less than 1.5% below its all-time high.

On Tuesday the market sagged amid comments from the White House that there was “still a long way to go” on a trade deal,1 while strong retail sales and manufacturing data actually triggered debate about whether the Fed would cut rates as aggressively as many had hoped.2

S&P 500 (SPX), 4/23/19–7/19/19. S&P 500 (SPX) price chart. Pullback from record.

Source: Power E*TRADE


Downside follow-through the next two days got a temporary reprieve Thursday afternoon when New York Fed President John Williams delivered a speech that included the following comments: “It’s better to take preventative measures than to wait for disaster to unfold.”

Widely interpreted as a sign the Fed was going to step up to the rate-cutting plate, the bank later issued a clarification, stating that Williams’ speech was about historical research, not about the July 31 FOMC meeting.3 After opening higher Friday, the SPX slowly slid into negative territory, locking in a losing week for only the second time since May 31.

Here’s the breakdown for the major US indexes:

US stock index performance table for week ending 7/19/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector breakdown: The strongest S&P 500 sectors last week were consumer staples (+1.1%), utilities (+0.7%), and information technology (+0.3%). The weakest sectors were energy (-2.8%), communication services (-1.9%), and real estate (-1.1%).

Power moves: On Monday Galapagos (GLPG) jumped 17% to $170.76 on news that Gilead Sciences (GILD) was upping its investment in the Belgian biotech company, while Eagle Bancorp (EGBN) tumbled -26.75% to $39.15.

Futures action: September WTI crude oil (CLU9) started out on the sell side on Monday and stayed that way until the final hours of the week, racking up a -7% loss by the time the market closed (around $56.20) on Friday. August gold (GCQ9) just punctured the top of its three-week trading range at the end of Thursday’s trading session but, after trading above $1,450/ounce briefly on Friday morning, reversed to end the week around $1,426, back inside the range.

Coming this week

Housing data looms large in this week’s economic calendar until Friday’s GDP release:

Monday: Chicago Fed National Activity Index

Tuesday: FHFA House Price Index, Existing Home Sales

Wednesday: New Home Sales

Thursday: Durable Goods Orders, International Trade in Goods, Jobless Claims, Retail Inventories, Wholesale Inventories, European Central Bank (ECB) announcement

Friday: GDP

Earnings momentum picks up significantly this week, with tech heavy hitters, social media, and name-brand consumer stocks sharing the spotlight with lots of airlines (and Boeing). The following list is just a sample:

●Monday: Whirlpool (WHR), Halliburton (HAL), Total System Services (TSS)

●Tuesday: JetBlue Airways (JBLU), Advanced Micro Devices (AMD), BioTelemetry (BEAT), Biogen (BIIB), Chipotle (CMG), Coca-Cola Co (KO), Lockheed Martin (LMT), Quest Diagnostics (DGX), GrubHub (GRUB), PulteGroup (PHM), Texas Instruments (TXN), Snap (SNAP), Visa (V)

●Wednesday: American Airlines (AAL), AT&T (T), Spirit Airlines (SAVE), Boeing (BA), Boston Scientific (BSX), Northrop Grumman (NOC), Ford Motor (F), Check Point Software (CHKP), Caterpillar (CAT), Celgene (CELG), Thermo Fisher Scientific (TMO), Facebook (FB), F5 Networks (FFIV), PayPal Holdings (PYPL), Tesla (TSLA), Xilinx (XLNX)

●Thursday: Alphabet (GOOGL), Amazon.com (AMZN), Alaska Air Group (ALK), Southwest Airlines (LUV), Rockwell Automation (ROK), Bristol-Myers Squibb (BMY), Baxter International (BAX), Intel (INTC), Raytheon (RTN), Starbucks (SBUX), Cypress Semiconductor (CY), Newmont Goldcorp (NEM), Verisign (VRSN), Juniper Networks (JNPR)

●Friday: Phillips 66 (PSX), Aon (AON), AbbVie (ABBV), McDonald's (MCD), Weyerhaeuser (WY), Cabot Oil & Gas (COG), Colgate-Palmolive (CL), Twitter (TWTR)

Go to the E*TRADE market calendar (logon 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.

Word on the Street

[C]entral banks around the world have basically signaled that they are going to step on the accelerator.

Guggenheim global chief investment officer Scott Minerd on why he thinks the S&P 500 could hit 3,500 by the end of the year.4

Chart of the week. If you were curious about what time last Thursday New York Federal Reserve President John Williams made his comments regarding the need to “act quickly” in cutting interest rates, the following five-minute SPX chart may help you nail things down:

S&P 500 (SPX), 7/18/19–7/19/19 (5-minute chart). Blurb: Cue the rally

Source: Power E*TRADE


Although it had already bounced back a little from the six-day low it made just before noon ET, the SPX was still in the red for the day a half hour before Williams was slated to deliver the keynote speech at the annual Central Bank Research Association meeting in New York.

Williams must have started pretty much on time, because the rally kicked into gear right around his scheduled start of 2:15 p.m. ET.

 

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1 Reuters. Trump says U.S., China still have a long way to go on trade deal. 7/16/19.

2 CNBC.com. A booming manufacturing report just poked another hole in the Fed’s case for a rate cut. 7/18/19.

3 Financial Times. New York Fed takes unusual step of clarifying president’s speech. 7/18/19.

4 CNBC.com. S&P 500 could rise 15% in the second half, Guggenheim CIO says. 7/15/19.

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