All’s well that ends better
07/09/18

A holiday-shortened week ended on a positive note, as traders shrugged off a ramped-up trade war and bid up US stocks in the aftermath of a consensus-beating employment report.

After trading within the previous week’s high-low range (not entirely surprising, given equity markets were shuttered for the Fourth of July holiday on Wednesday and closed early on Tuesday), the S&P 500 (SPX) pushed to its highest level in eight days on Friday after the Bureau of Labor Statistics reported a higher-than-expected number of new jobs for June (213,000 vs. 190,000) and revised May’s number upward (244,000 from 223,000):1

S&P 500 (SPX), 3/6/18 – 7/6/18. S&P 500 (SPX) price chart. Upside breakout.

Source: OptionsHouse

Even an apparent downside—the uptick in the unemployment rate from 3.8% to 4%—was attributed to an influx of new job seekers rather than an increase of newly unemployed.

The upbeat jobs report apparently helped mitigate some of the anxiety surrounding the White House’s announcement that it was moving forward with its threatened tariffs on China. Overseas markets had initially turned lower on the news, and US stock index futures were in the red prior to the 8:30 release of the employment numbers.

Although tech stocks appeared to be Friday’s biggest winner, small caps led the market for the week, and the Russell 2000 (RUT) pushed its year-to-date return back into double digits. Here’s the index breakdown for last week:

Index comparison table for week ending July 6, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)

The top-performing S&P 500 sectors were health care (+3.1%), utilities (+2.4%), and information technology (+2.3%). The worst-performing sectors were energy (-0.3%), financials (+0.3%), and materials (+0.7%).

After taking a beating on June 28 when Amazon.com announced its entry into the prescription delivery business, Walgreens Boots Alliance had subsequently rebounded more than 7% through Friday’s close.

In futures, August WTI crude oil futures (CLQ8) topped $75/barrel on Monday before pulling back, while soybeans made an interesting move on Friday: After getting battered for weeks and pushing to new contract lows on Thursday amid the tariff situation, July soybeans (ZSN8) reversed sharply to the upside on Friday, gaining 2%.

The week ahead: Inflation data takes center stage this week on the economic calendar:

Monday: Consumer Credit

Tuesday: NFIB Small Business Optimism Index, JOLTS

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

Thursday: Consumer Price Index (CPI)

Friday: Consumer Sentiment, Import and Export Prices

A mostly quiet week for earnings begins to make some noise on Friday as a spate of high-profile financial names release their latest numbers:

Monday: Helen of Troy (HELE)

Tuesday: PepsiCo (PEP), Healthcare Services Group (HCSG), WD-40 (WDFC)

Wednesday: Fastenal (FAST), MSC Industrial (MSM)

Thursday: Commerce Bancshares (CBSH), Delta Air Lines (DAL)

Friday: Citigroup (C), First Republic Bank (FRC), JPMorgan Chase (JPM), PNC (PNC), Wells Fargo (WFC)

Go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, and other market events.

A small step (for small caps…and tech). This week’s rally brought the Russell 2000 to within less than 1% of its June 20 all-time high of 1708.10. The Nasdaq 100 is just a little more than 1% from its record peak.

 

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1 Econoday.com. Employment Situation. 7/6/18.