Summer slump

08/05/19
  • Fed trims rates, but hedges on additional cuts
  • Trade war alive and well
  • This week: Almost 1,400 earnings announcements

The monthly jobs report isn’t typically an also-ran in the market news department, but you could make the case it was last week, as stocks sagged amid confusion over the Fed’s interest rate cut and the unexpected return of Tariff Man.

Despite a last-minute rally on Friday, it was five straight down days for the S&P 500 (SPX), which posted its worst week of the year and closed Friday at its lowest level in more than a month:

S&P 500 (SPX), 5/31/19–7/26/19. S&P 500 (SPX) price chart. Pullback to late-June lows…and Fib level.

Source: Power E*TRADE


The Federal Reserve cut interest rates as expected on Wednesday—and stated it was prepared to “act as appropriate to sustain the expansion” amid uncertainties to its economic outlook1—but follow-up comments from Chairman Jerome Powell suggested the move may have been more of a one-off than the beginning of a longer rate-cutting cycle.2 The SPX responded by closing at a seven-day low.

Nonetheless, the market appeared to be feeling better about things on Thursday morning—the SPX was up more than 1%—until President Trump tweeted he would slap new tariffs on Chinese products starting in September.3 Cue the bears.

A down week was probably a done deal at that point, but Friday’s solid (perhaps too-solid) jobs report likely fed the growing impression that future interest-rate cuts would be minimal, if they occurred at all, and the SPX retreated to its late-June lows before curbing its losses late in the day.

Here’s how the major US indexes stacked up:

US stock index performance table for week ending 8/2/19. 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 real estate (+2%), utilities (+0.3%), and health care (-1.1%). The weakest sectors were consumer discretionary (-4.6%), information technology (-4.4%), and financials (-3.9%).

Power moves: 2U (TWOU) tumbled -65% to $12.80 on Wednesday, while Myriad Genetics (MYGN) skyrocketed + 54% to $45.01 on Thursday.

Futures action: Traders continued to dump England’s currency, as the September British pound futures (6BU9) slid to a fresh contract low of 1.2104 on Thursday and closed around 1.2175 on Friday.

September WTI crude oil (CLU9) suffered its biggest one-day drop of the year on Thursday, falling to a six-week low of $53.59/barrel, but recovered on Friday to end the week around $55.20.

Thursday was also a big day for August gold (GCQ9), which initially fell to a three-week low before reversing to hit an eight-day high of $1,445/ounce. The market closed around $1,440.50 on Friday.

Coming this week

A relatively light week of US economic data includes some key data from overseas:

Monday: PMI Services Index, ISM Non-Manufacturing Index

Tuesday: JOLTS, Reserve Bank of Australia announcement

Wednesday: Consumer Credit, Germany Industrial Production

Thursday: Wholesale Trade, Japan GDP

Friday: Producer Price Index (PPI), China Unemployment, Britain monthly GDP

Don’t get caught napping—nearly 1,400 companies are currently scheduled to release earnings this week:

●Monday: Cabot (CBT), Tenet Healthcare (THC), ON Semiconductor (ON), Tyson Foods (TSN), Take-Two Interactive Software (TTWO), Shake Shack (SHAK), Marriott International (MAR), WageWorks (WAGE)

●Tuesday: Monster Beverage (MNST), Twenty-First Century Fox (FOXA), Devon Energy (DVN), Walt Disney (DIS), Mosaic (MOS), US Foods (USFD), Match Group (MTCH), LGI Homes (LGIH), NetEase (NTES)

●Wednesday: American International Group (AIG), Gaming and Leisure Properties (GLPI), Albemarle (ALB), Jack in the Box (JACK), Booking Holdings (BKNG), CVS (CVS), Marathon Oil (MRO), Zillow (ZG), LYFT (LYFT), Roku (ROKU), Worldpay (WP), Shutterfly (SFLY)

●Thursday: Activision Blizzard (ATVI), Murphy Oil (MUR), Cheniere Energy (LNG), Symantec (SYMC), CBS (CBS), Kraft Heinz (KHC), Trade Desk (TTD), Keurig Dr Pepper (KDP), Dropbox (DBX), Fastly (FSLY), Yelp (YELP), Viacom (VIAB), Uber (UBER)

●Friday: Tribune Media Co (TRCO), US Concrete Inc (USCR)

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.

Good news about a bad week? Longer-term implications aside, in the short term, the upside of down weeks like last week is that they are, more often than not, followed by…upside.

Since 1960, there have been 51 other weeks when the SPX has fallen 3%–4% following an up week. The index closed higher the next Friday in 29 cases (57% of the time), and posted a median return of 0.42%.4 The last week that fit this bill was October 26, 2018; the one before that was February 2, 2018.

And some traders may have noticed (and those that didn’t can take another look at the SPX chart) that Friday’s decline dropped the SPX to a twin support level representing both the late-June swing low and a 38.2% Fibonacci retracement of the June 3–July 26 rally.

 

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1 Federalreserve.gov. Federal Reserve issues FOMC statement. 7/31/19.

2 CNBC. Dow drops 250 points as Powell hints rate cut was just an ‘adjustment,’ not the start of a trend. 7/31/19.

3 Barron’s. Dow Drops Because Trump Just Announced New Tariffs on China. 8/1/19.

4 Supporting document available upon request.

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