Casually bullish
04/16/18

As we enter the thick of Q1 earnings season, the S&P 500 (SPX) is hanging around the top of the consolidation it formed after testing its February correction low at the beginning of April—not a bad place to be considering the series of mixed signals regarding trade wars (and possible military conflict) emerging from Washington last week.

Another up-and-down week was perfectly captured in microcosm on Friday, when the S&P 500 (SPX) traded to its highest level in three weeks in the opening minutes of the session, but quickly dropped into negative territory before rebounding back into the green and, finally, turning lower again to settle for a minor loss on the day—but a gain for the week. Since the April 2 low, the index has wedged itself into a slightly bullish consolidation pattern, putting up a series of higher lows and occasional higher highs and closes, along with a gradual decline in daily ranges.

S&P 500 (SPX) 12/28/17 – 4/13/18. S&P 500 daily price chart. Consolidation pattern.

Source: OptionsHouse

Overall, last week featured more of the back-and-forth traders have grown accustomed to over the past couple of months. Worries about a potential US-China trade war (and the market’s sell-off the previous Friday) were in full force as trading started last Monday, but conciliatory Tweets from the White House appeared to ease some of those fears.

On Wednesday, stocks pulled back again (and crude oil rallied) as a different kind of war was thrust into the public consciousness when President Trump threatened Russia with missile strikes in Syria—only to pull back on those reins on Thursday. Soon after came reports that the president was reconsidering the Trans-Pacific Partnership (TPP) trade agreement that he killed soon after taking office.

Friday’s de facto inauguration of Q1 earnings season kicked off with mostly positive numbers from big banks: JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) all beat earnings and revenue estimates—and all sold off on the day.

The small-cap Russell 2000 (RUT) pushed itself back into positive territory for the year, joining the Nasdaq 100 (NDX):

Index Comparison. US stock index comparison, week ending March 29, 2018

Source: OptionsHouse

Last week’s overall bullishness was also reflected in an inversion of recently hot and cold sectors—tech got back in the bullish picture after a multi-week vacation, and defensive utilities moved toward the back of the line. The top-performing S&P 500 sectors were Energy (+6%), Information Technology (+3.8%), and Materials (+2.8%). The worst performing sectors were  Real Estate (-1.4%), Utilities (-1.2%), and Telecom (-0.6%).

One of the individual highlights of the week was gene-therapy firm AveXis’ (AVXS) 82% jump on Monday (from $115.91 to $210.46) on news it was being acquired by Novartis (NVS).

In commodities, crude oil futures pushed to their highest level since late 2014, with the June contract (CLM8) climbing close to $68, helping to boost the fortunes of energy sector stocks.

Looking ahead, this week’s economic calendar is on the light side, but it features a couple of housing numbers, as well as Leading Indicators.

Monday: Retail Sales, Business Inventories, Housing Market Index

Tuesday: Housing Starts, Industrial Production

Wednesday: Beige Book

Thursday: Leading Indicators

Futures contracts expiring this week include:

Monday: Most April currency (FX) contracts

Tuesday: April Canadian dollar (CDJ8)

Friday: May WTI crude oil (CLK8)

As mentioned, earnings will be coming in fast and furious:

Monday: Bank of America (BAC), Netflix (NFLX), Celanese (CE), JB Hunt Trans (JBHT)

Tuesday: Goldman Sachs (GS), Johnson & Johnson (JNJ), UnitedHealth (UNH), IBM (IBM), United Continental (UAL), Northern Trust (NTRS), Omnicom (OMC), Lam Research (LRCX), Prologis (PLD)

Wednesday: Abbott Labs (ABT), Alcoa (AA), American Express (AXP), ASML (ASML), Morgan Stanley (MS), Kinder Morgan (KMI), Textron (TXT), U.S. Bancorp (USB)

Thursday: BNY Mellon (BK), Dover (DOV), Genuine Parts (GPC)

Friday: Baker Hughes (BHGE), General Electric (GE), Procter & Gamble (PG), Schlumberger (SLB), Honeywell (HON), Stanley Black & Decker (SWK), State Street (STT), TransUnion (TRU), Waste Management (WM)

You can find a complete list of earnings, splits, dividends, IPOs, and other market events on the E*TRADE market calendar (logon required).

Some final food for thought about the current market: Since February 20 the S&P 500 has been split evenly between up and down days (19 each), with only one directional streak longer than three days—the four-day decline from March 12 to March 15.

 

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1 CNN.com. Senators: Trump is reconsidering his stance on TPP trade deal. 4/13/18.