S&P 500 gains for seventh week in eight as metals bounced, housing continued to run
03/20/17

The S&P 500 inched higher last week as investors piled into housing stocks and metals.

The index rose 0.24 percent between Friday, March 10, and Friday, March 17 -- its seventh positive return in the last eight weeks. That said, there was considerable rotation between sectors as investors reacted to strong economic news in a surprising way. 

The U.S. Federal Reserve raised interest rates for the third time since last decade’s financial crisis. And positive economic data hit near Polyannic proportions: Consumer sentiment improved more than anticipated and remains near 17-year highs. Regional manufacturing surveys beat estimates and homebuilders registered the best sentiment since 2005. The number of Americans needing unemployment benefits remained at levels last seen during the Nixon years.

The reaction wasn’t what one would expect though. While such headlines typically lift interest rates and financials, traders had the opposite take by piling into gold miners, steel makers, and copper producers. They’ve also been shifting money overseas, giving the S&P 100 Global Index three times the return of the S&P 500 so far in March. (This may be a continuation of the euro strength cited in last week’s note.) 

Housing kept running amid signs of strong traffic and increased demand. That propelled the iShares US Home Construction ETF (NYSE Arca: ITB) to its highest levels in more than a decade.

Russell 2000 vs S&P 500

Source: OptionsHouse by E*TRADE

Elsewhere, technology remained hot, with Oracle (NASDAQ: ORCL) and Adobe Systems (NASDAQ: ADBE) breaking out to new highs as cloud-computing growth drove better-than-expected results. Semiconductor-equipment firms Lam Research (NASDAQ: LRCX) and Applied Materials (NASDAQ: AMAT) extended their rallies at a time of strong chip sales and rebounding PC shipments.

The beleaguered energy sector also had some rays of sunshine after inventory reports showed a record crude-oil glut easing for the first time in 2-1/2 months. Another noteworthy development last week was renewed strength in the Russell 2000 Small Cap Index, which has lagged the S&P 500 this quarter following significant outperformance over the last 12 months. 

Companies associated with traditional brick-and-mortar retail continued to struggle as Target (NYSE: TGT), Simon Property (NYSE: SPG), and Fossil (NASDAQ: FOSL) slipped to new 52-week lows. 

The calendar this week is relatively quiet until Fed chair Yellen delivers an address Thursday pre-market. Durable-goods orders and preliminary estimates of European manufacturing follow the next morning.