Another week, another new high for the S&P
10/02/17

Forget about half-full. Some traders are starting to wonder if the glass isn’t three-quarters full.

The S&P 500 rose 0.7 percent between Friday, September 22, and Friday, September 29. It was the index’s third straight week with a new record high, while measures of fear (yes VIX, we mean you) shriveled to their lowest levels in more than two months.

If investors had to describe the situation in three words, they might utter “optimism”, “confidence”, and “mirth”.

“Optimism” was their take on the economic news, with industrial reports at home and abroad blowing past forecasts, while at home second-quarter GDP revised up more than expected.1 Even weak reports on consumers and housing were explained away on hurricanes and lack of inventories.2 Never mind that, tax cuts may be coming soon.3

“Confidence” is how market watchers could have described the sector performance, as money streamed into areas that tend to benefit from a stronger economy, like banks, energy, homebuilders, small-caps, retail, and transports. Meanwhile, safety plays like gold, health care, and utilities lagged.

“Mirth” is the feeling longer-term investors might have felt when they realized the S&P just registered its eighth consecutive positive quarter. 

Applied Materials (NASDAQ: AMAT) was the index’ strongest individual stock last week, up nine percent on hopes of strong demand for memory chips. Genuine Parts (NYSE: GPC) rallied almost as much after management said it would boost earnings with the purchase of a European firm.4 D.R. Horton (NYSE: DHI) also gained more than eight percent.

S&P 500, 7/25/17 - 9/29/17

Source: OptionsHouse by E*TRADE

Scana (NYSE: SCG), on the other hand, led to the downside with a 12 percent drop. The forlorn utility continued to melt down as officials in South Carolina probed an unfinished nuclear power plant. Financial-data company IHS Markit (NASDAQ: INFO) followed with a nine percent drop on the heels of weak guidance.5

This week brings some potentially important catalysts:

  • First, is Spain, as yesterday Barcelona’s region planned to defy Madrid by holding an independence referendum. Any potential impact of the vote on markets isn’t yet clear.
  • Today brings the Institute for Supply Management’s closely watched manufacturing index and construction spending. Australia’s central bank, sometimes viewed as a bellwether for China, announces interest rates in the evening.
  • Tomorrow is the quietest session, with auto sales as the only big event.
  • The big fish on Wednesday include PepsiCo (NYSE: PEP) earnings, ADP’s private-sector payrolls reports, crude-oil inventories, and a speech by Fed chair Yellen. 
  • Thursday features initial jobless claims and factory orders, plus numbers from Constellation Brands (NYSE: STZ), Costco (NASDAQ: COST), and Yum China (NYSE: YUMC).
  • The week wraps up with non-farm payrolls and unemployment Friday morning.

Don’t forget that the week after this, we’ll start getting quarterly results from major financials. Earnings season, here we come.

 

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1. RTTNews: China's Industrial Profits Surge In August. 9/27/17. Marketwatch: Manufacturing muscle: Durable-goods orders jump 1.7% in August. 9/27/17. RTTNews: Chicago Business Barometer Unexpectedly Jumps In September. 9/29/17. Business Insider: US economic growth hits a 2-year high on strong business and consumer spending. 9/28/17.

2. Marketwatch: Consumer confidence dips after hurricanes Irma, Harvey, but U.S. optimism still high. 9/26/17. Marketwatch: In the face of hurricanes and politics, consumer sentiment weakens slightly. 9/29/17. Reuters: US new home sales fall to 8-month low in August. 9/26/17. CNBC: Pending home sales drop 2.6% in August; top Realtors economist warns housing market 'stalled'. 9/27/17.

3. Politico: Trump pledges 'giant, beautiful, massive' tax cut. 9/29/17.

4. Marketwatch: Micron outlook, capex hike spark rally in memory chip makers. 9/27/17. Genuine Parts Company (press release): Genuine Parts Company Enters Definitive Agreement To Acquire Europe's Alliance Automotive Group. 9/25/17.

5. Bloomberg: Scana Says S.C. Is Seeking Criminal Probe of Nuclear Project. 9/26/17. Bank of America Merrill Lynch: FY18 noise crowds out underlying positive signals in 3QF17 results. 9/27/17.