Bull gives bear the horns

What do you do after you throw down one of the worst weeks in the stock market in more than two years?

Put up the best week in more than five years, of course.

That’s what the S&P 500 (SPX) did last week as US stocks extended their gains off the market’s first 10% correction since early 2016. In the process, the SPX rattled off six straight days of gains (matching its longest streak since October), the Dow Jones Industrial Average (DJIA) climbed back above 25,000, and US indexes got back into positive territory for the year.

S&P 500 (SPX) 9/13/17 – 2/16/18

Source: OptionsHouse

The SPX gained more last week (4.3%) than it has in a single Friday-to-Friday period since December 2012—but it still lagged the Nasdaq 100 (NDX), as tech stocks rebounded aggressively from their lows and led the market to the upside.

Also by last Thursday, volatility had returned to its 20-year average. After peaking above 50 on February 6, the Cboe Volatility Index (VIX) dropped back below 20 and to its lowest level in two weeks.

Aside from the rebound, the other story that gripped the market last week—if only temporarily—was inflation. Stock index futures tumbled last Wednesday when the January Consumer Price Index (CPI) reading came in higher than expected, but the market reversed almost immediately to register its third-biggest up day of the past year. Stocks appeared to more or less ignore the next day’s mildly higher Producer Price Index (PPI) number, though.

Here’s the US market breakdown for last week:

Index Comparison

Source: OptionsHouse

The best performing S&P 500 sectors last week were Information Technology (+5.8%), Financials (+4.7%), and Industrials (+4.6%). Within tech, Communication Equipment stocks gained more than 10%, and Cisco Systems (CSCO) did its share with a 14%-plus surge, thanks in part to a strong earnings release on Wednesday.

Even the worst-performing sectors last week finished in positive territory: Real Estate (+1.8%), Energy (+1.9%), and Telecom Services (+2.4%).

An extremely light economic calendar this holiday-shortened week is highlighted by the release of the FOMC minutes on Wednesday:

Monday: Equity markets closed.

Tuesday: None.

Wednesday: Existing Home Sales, FOMC Minutes

Thursday: Leading Indicators

Friday: None

But there are a surprising number of earnings scheduled this week—175 on Thursday alone. Go to the E*TRADE market calendar (login required) for a complete and up-to-date list of earnings and other market events. Here are a few highlights: 

Monday: Equity markets closed.

Tuesday: Ecolab (ECL), Home Depot (HD), Medtronic (MDT), Wal-Mart (WMT), American Water Works (AWK), Fluor (FLR), Verisk Analytics (VRSK).

Wednesday: Advance Auto (AAP), Cheniere Energy (LNG), Garmin (GRMN), Owens Corning (OC), WEX (WEX), Wolverine (WWW), Curtiss-Wright (CW), Roku (ROKU), Valmont (VMI).

Thursday: Newmont Mining (NEM), SAGE Therapeutics (SAGE), Shutterstock (SSTK), Toro (TTC), Wayfair (W), First Solar (FSLR), GoDaddy (GDDY), Intuit (INTU), Restoration Hardware (RH).

Friday: Boise Cascade (BCC), NW Natural Gas (NWN), Royal Bank of Canada (RY).

It’s always a good idea to stay on top of patterns that can appear around market holidays. “Another tech rebound” discusses some tendencies associated with Presidents Day—just something to keep tabs on in case it dovetails with how the market is behaving in the next few days.

A final thought: As of Friday, the SPX was closer to its January 26 record high of 2872.87 than it was to its February 9 correction low of 2532.69. Investors are likely feeling less stressed than they were a week ago, but if we can take any lessons from the past, it’s that the market likes to surprise. In the relatively near future, the market is going to test its all-time highs or its correction lows. Either way, there are bound to be trading opportunities.


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