Stocks within striking distance

09/09/19
  • Market busts out of consolidation on trade news, takes muted jobs report in stride
  • S&P 500 within 1.6% of all-time high as of Friday
  • This week: Inflation data...and plenty of Fed speculation

So far, so good.

The market enters the second week of September on a two-week winning streak as favorable trade winds pushed the S&P 500 (SPX) out of its month-long trading range to its highest levels since July 31—and just 1.6% below its all-time high:

S&P 500 (SPX), 6/26/19–8/30/19. S&P 500 (SPX) price chart. Late-week breakout.

Source: Power E*TRADE


Last week’s action revolved around three major pieces of news—one that knocked stocks lower, one that catapulted them higher, and one that seemed to leave them in limbo:

●Tuesday’s ISM Manufacturing Index shows the first contraction in US manufacturing in three years. SPX falls as much as -1.2% intraday, while crude oil and copper prices tumble.

●Wednesday night’s news that US and China would resume trade talks in October sends stocks soaring on Thursday.1 SPX rallies +1.3%, gold retreats.

●On Friday, a weak employment report (130,000 new jobs vs. 150,000 expected)2 is followed by a narrow-range trading day, as market players appeared to weigh the economic implications of the number itself vs. the likelihood that it would increase the odds of further interest rate cuts (a positive for stocks).

But stocks managed to hold on to their small gains on Friday, concluding the market’s first two-week winning streak since mid-July. Here’s how the major US indexes measured up:

US stock index performance table for week ending 9/6/19. 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 (+2.7%), consumer discretionary (+2.6%), and information technology (+2.4%). The weakest sectors were utilities (+0.4%), health care (+0.7%), and materials (+0.9%).

Power moves: Conns (CONN) jumped +18% to $23.85 on Tuesday, and followed through to the upside the remainder of the week. Earnings releases triggered a couple of big moves on Friday: Docusign (DOCU) rallied +22% to $56.27, while DOMO (DOMO) slid -37.5% to $15.77.

Futures action: One day after hitting a new contract high of $1,566.20 on Wednesday, December gold (GCZ9) dropped like a stone on Thursday as stocks soared, falling as low as $1,514.30 and ending the week a little below that level.

October WTI crude oil (CLV9) rallied with stocks on Wednesday, but not enough to push it out of its four-week trading range. The choppy market ended the week up modestly around $56.60/barrel. December copper (HGZ9) jumped roughly 6% off Wednesday’s multi-month low to close Friday at 2.6285, near its three-week high.

On the currency front, after falling to 1.1965 on Tuesday amid Brexit-related chaos, the September British pound (6BU9) roared back the other way, closing the week around 1.2300.

Coming this week

Inflation data moves into the economic spotlight this week:

Monday: Consumer Credit

Tuesday: NFIB Small Business Optimism Index, JOLTS

Wednesday: Producer Price Index (PPI), Atlanta Fed Business Inflation Expectations, Wholesale Trade

Thursday: European Central Bank (ECB) announcement, Producer Price Index (PPI)

Friday: Retail Sales, Import and Export Prices, Business Inventories, Consumer Sentiment

Earnings this week include:

●Monday: Ctrip.Com (CTRP), Caseys General Stores (CASY)

●Tuesday: HD Supply (HDS), RH (RH), Dave & Buster's (PLAY)

●Wednesday: Progressive (PGR), Oxford Industries (OXM)

●Thursday: Company (Symbol), Kroger Co (KR), Broadcom (AVGO)

●Friday: National Presto Industries (NPK), National Beverage (FIZZ)

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.

If you pierce a fear bubble, do you have a big rally? [I] kind of think that’s one of the contributing factors to the upside.

Leuthold Group chief investment strategist Jim Paulsen.3

Red zone offense. With the SPX closing last Thursday less than 2% below its July 26 all-time high of 3,027.98, how long could it take the index to close the gap and set a new record?

The good news is that, with one exception, since 2007 the SPX has hit a new all-time high in two months or less after rallying to within 2% of a previous record.

The exception occurred in 2015–2016, after the SPX pulled back from its record high of 2,134.72 on May 20, 2015. After pulling back, on June 18 the index rallied to within 2% of that high, but it couldn’t quite get over the hump. It wasn’t until July 11, 2016—more than year later—that it finally rallied above the old high.

Take away that outlier, though, and you’re looking at a median wait time of around two weeks (11 trading days), with the shortest being four days and the longest 43 days.4

 

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1 Bloomberg. China, U.S. to Hold Trade Talks in October as Mistrust Remains. 9/5/19.

2 CNBC.com. Jobs growth falls short of expectations as August payrolls rise just 130,000. 9/6/19.

3 CNBC.com. A ‘fear bubble’ is creating a huge buying opportunity, long-time market bull Jim Paulsen says. 9/1/19.

4 Based on 14 examples in the S&P 500 (SPX) since October 2007. Supporting document available upon request.

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