●Big Tuesday rally offset by Thursday-Friday weakness
●Oil continued slide, gold ticked higher
●Earnings in full swing, GDP due on Friday
As if to remind everyone October isn’t over yet, the US stock market took traders on an a bit of a rollercoaster ride last week, jumping higher one day and retreating the next, with small caps and tech stocks losing more ground but large caps ending the week in the plus column—barely.
Some volatility was probably in the cards given the previous week’s nerve-jangling selloff. After opening last week with a modest decline, the S&P 500 (SPX) jumped more than 2% on Tuesday—its biggest daily rally since March 26 and the third-biggest of the past two years. After a flat Wednesday, though, that gain was mostly erased by Thursday’s 1.5% retreat. Friday ended the week with a bit of a mixed message—the SPX never moved outside of Thursday’s high-low range, but closed slightly down on the day and toward the bottom of its range.
Interest rates appeared to remain front and center in the market psyche, as Treasury yields continued to hover near recent highs. The 10-year T-note yield ended the week around 3.2%, and Wednesday’s FOMC minutes suggested the Fed was prepared to stay the course on rate hikes.1
Tuesday’s turbo boost appeared to get some early gas from strong earnings from Goldman Sachs (GS) and Morgan Stanley (MS), but tech, which had taken the biggest hit during the previous week’s downturn, led the upsurge. The Nasdaq 100 (NDX) notched a 3% gain for the day, although it trailed the index pack for the week:
Source: OptionsHouse (data)
Sector action: The market maintained a defensive posture last week, with consumer staples (+4.3%), real estate (+3.2%), and utilities (+3.1%) topping the list of the strongest S&P 500 sectors. The worst-performing sectors were consumer discretionary (-2%), energy (-1.9%), and materials (-1.4%).
Highlight reel: On Monday L3 Technologies (LLL) jumped nearly 13% on news of a $34 billion merger with Harris Corp. (HRS), which gained nearly 12%. The deal will reportedly create the largest US defense contractor.3
Cloud communications stock Twilio (TWLO) tanked 12% intraday on Tuesday before rebounding to close up after news that it was buying SendGrid (SEND) for $2 billion.
Netflix (NFLX) jumped nearly 10% on Wednesday following its positive quarterly report, but gave back that gain by the end of the week.
Futures watch: Although it didn’t fly to the moon, gold held its bid for most for the week, consolidating just above the trading range it broke out of on October 11. December gold futures (GCZ8) ended the week around $1,229/ounce.
Oil continued its slide, with December WTI crude futures (CLZ8) tumbling below $69/barrel for the first time in a month before rebounding a little on Friday.
The week ahead
This week’s economic calendar is highlighted by more housing data and Friday’s GDP release:
●Monday: Chicago Fed National Activity Index
●Tuesday: Germany Producer Price Index (PPI)
●Wednesday: FHFA House Price Index, New Home Sales, EIA Petroleum Status Report, Beige Book
●Thursday: Durable Goods, Orders, International Trade in Goods, Retail Inventories, Wholesale Inventories, Pending Home Sales Index, European Central Bank (ECB) Announcement
●Friday: GDP, Consumer Sentiment
Get ready, earnings season is in full swing. Alphabet (GOOG), Amazon (AMZN), and Microsoft (MSFT) are on tap, along with lots of tech, airlines, pharma—and just about everything else. A small sample:
●Monday: Cadence Bancorp (CADE), Halliburton (HAL), Hasbro (HAS), Kimberly-Clark (KMB), Lennox International (LII), Sallie Mae (SLM), Zions Bancorp (ZION)
●Tuesday: Biogen (BIIB), Caterpillar (CAT), Fifth Third (FITB), Harley-Davidson (HOG), JetBlue Airways (JBLU), Lockheed Martin (LMT), McDonald's (MCD), Verizon (VZ), Juniper Networks (JNPR), Teradyne (TER), Texas Instruments (TXN)
●Wednesday: Advanced Micro Devices (AMD), AT&T (T), Boeing (BA), Boston Scientific (BSX), Check Point Software (CHKP), General Dynamics (GD), NASDAQ (NDAQ), Northrop Grumman (NOC), UPS (UPS), F5 Networks (FFIV), Ford Motor (F),Microsoft (MSFT), Spirit Airlines (SAVE), Visa (V)
●Thursday: Alaska Air (ALK), Altria (MO), American Airlines (AAL), Bristol-Myers (BMY), CME Group (CME), ConocoPhillips (COP), Dunkin (DNKN), GrubHub (GRUB), Merck (MRK), Raytheon (RTN), Shopify (SHOP), Southwest Air (LUV), Twitter (TWTR), Worldpay (WP), Xerox (XRX), Alphabet (GOOG), Amazon (AMZN), Baidu.com (BIDU), Cypress Semi (CY), Gilead Sciences (GILD), Intel (INTC), Mattel (MAT)
●Friday: Aon (AON), Charter Communications (CHTR), Colgate-Palmolive (CL), Goodyear Tire (GT), Moody's (MCO), Phillips 66 (PSX), Rockwell Collins (COL)
Go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, economic reports, and other market events.
No place like home? The housing market continues to be a lingering sore spot in an otherwise humming US economy. Homebuilder stocks sold off on Friday after another weak housing number—existing home sales, which fell to their lowest level in nearly three years and included downward revisions of the previous month’s data.3
Many traders will likely be keeping a close eye on the week's housing numbers.
1 CNBC.com. Rates rise for the week after Fed vows to stay the course with hikes. 10/19/18.
2 Washington Business Journal. Does the Harris-L3 merger signal peak Pentagon? 10/15/18.
3 Econoday.com. Existing Home Sales. 10/19/18.