Friday turnaround

05/13/19
  • SPX dropped to six-week low before vaulting higher late Friday
  • No trade-war resolution, Uber sags in trading debut
  • This week: Leading indicators, CSCO, NVDA, and WMT earnings

A week that started out on a bad note and looked like it was ending on a worse one got back in tune when stocks rebounded off a nearly six-week low on Friday to close out the day in the plus column, taking some of the sting out of the US market’s worst week of the year:

S&P 500 (SPX), 3/8/19–5/10/19. S&P 500 (SPX) price chart. Pullback from highs.

Source: Power E*TRADE


In the wake of new US tariffs on Chinese goods kicking in at 12 a.m. on Friday, the SPX dropped to its lowest point since March 29 before positive comments regarding future negotiations from Treasury Secretary Steve Mnuchin appeared to ease some of the market’s concerns about a full-blown trade war.1

Friday’s turnaround was the most extreme example of a pattern that occurred repeatedly last week: On each day but Wednesday the SPX rebounded to close well above its intraday lows. There was also a possible signal from the options market that traders were less anxious on Friday even as stocks were falling to fresh lows (see "VIX watch," below).    

Nonetheless, all major US indexes ended the week in the red. The Dow Jones Industrial Average (DJIA) made a rare appearance at the top of the US index strength list, with the Nasdaq 100 (NDX) falling to last place as traders backed off from the high-flying tech sector:

US stock index performance table for week ending 5/10/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector breakdown: The top-performing S&P 500 sectors last week were consumer staples (-0.5%), real estate (-0.8%), and energy (-0.9%). The worst-performing sectors were information technology (-3.7%) industrials (-3.1%), and materials (-3%).

Power Moves: On Thursday, Control4 (CTRL) jumped 40% to $23.90 and Roku (ROKU) rallied 28% to $83.17. On the downside, Stamps.com (STMP) plunged -56% to $36.90 on Thursday (its second 50%-plus one-day drop in the past three months), while Puma Biotechnology (PBYI) dropped -39% to $18.42 on Friday.

Uber (UBER) may have had the misfortune of kicking off trading on one of the most volatile trading days of the year, ending its IPO on Friday with a 7.6% loss, closing at $41.57

Futures action: June WTI crude oil (CLM9) consolidated last week, closing Friday around $61.60/barrel, virtually unchanged from a week earlier. Gold also had a quiet week, with the June futures (GCM9) edging higher to around $1,287. The June US dollar index (DMM6) closed Friday at a nearly three-week low of 97.11.

Coming this week

Retail sales and the month’s first housing numbers are on tap, with Leading Indicators rounding out the week on Friday:                                                                       

Monday: Nothing here—move directly to earnings

Tuesday: Import and Export Prices

Wednesday: Retail Sales, Industrial Production, Atlanta Fed Business Inflation Expectations, Business Inventories, Housing Market Index

Thursday: Housing Starts

Friday: Consumer Sentiment, E-Commerce Retail Sales, Leading Indicators

A lightening earnings load still includes several marquee names, including Wal-Mart (WMT), Cisco (CSCO), Nvidia (NVDA), and Applied Materials (AMAT):

Monday: BiliBili (BILI), Legg Mason (LM), StoneCo (STNE), Take-Two (TTWO), Tencent Music (TME)

●Tuesday: CyberArk (CYBR), Ralph Lauren (RL), Takeda Pharma (TAK), 8x8 (EGHT), Agilent (A), Aurora Cannabis (ACB), Tilray TLRY)

●Wednesday: Alibaba (BABA), Macy's (M), Cisco Systems (CSCO), Netease (NTES), ZTO Express (ZTO)

●Thursday: Baozun (BZUN), Wal-Mart (WMT), Wix.com (WIX), Applied Materials (AMAT), Baidu.com (BIDU), iQIYI (IQ), Kraft Heinz (KHC), NVIDIA (NVDA), Pinterest (PINS)

Friday: Deere (DE)

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.

There is an attempt to take the dollar out of the reserve currency status. I think that would be a disaster to the U.S.

Investor Sam Zell of Equity International, on one of the risks of cutting U.S. interest rates.2

VIX watch. As the market sold off last week, the Cboe Volatility Index (VIX), a widely watched stock market “fear index” derived from S&P 500 options prices, surged more than 80%, hitting its highest level (23.38) since early January on Thursday.

On Friday, though, when the SPX dropped to a lower low, the VIX made a lower high (20.19), suggesting that the market was experiencing less anxiety even as stocks were falling to lower levels—a condition that has sometimes corresponded to at least a temporary rebound in the SPX.

The SPX, in fact, put together its biggest intraday rally of the week on Friday, climbing 2% off its low.

 

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1 Reuters. Trump says no hurry to sign deal with China as trade war escalates. 5/10/19.

2 CNBC.com. Sam Zell says Trump's desire to slash interest rates could end in 'a disaster'. 5/8/19.

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