Climbing the market ladder
07/30/18

A week that packed in earnings releases for more than a third of the S&P 500 (SPX) saw the broad market tick higher, with plenty of fireworks from some of the market’s biggest names.

Overall, large-cap issues led the market to the upside. The SPX climbed to within less than 1% of its all-time high, and the Dow Jones Industrial Average (DJIA) posted the best return for the week. Along the way, the Nasdaq 100 (NDX) hit new records on Tuesday and Wednesday before late-week selling kicked in—despite Friday’s 4.1% GDP reading.

S&P 500 (SPX), 1/22/18 – 7/27/18. S&P 500 (SPX) daily price chart. Record highs.

Source: OptionsHouse


On the other side of the ledger, the previous week’s leader—the Russell 2000 (RUT)—fell more than 1% on Tuesday amid reports1 that small-cap stocks were potentially overextended because investors were crowding into them to limit exposure to tariffs, which many analysts contend hit international, large-cap companies harder.

After a Wednesday rally in the wake of apparent progress on the US-European Union trade situation,2 the market pulled back on Thursday and (especially) Friday amid some high-profile tech earnings disappointments, including Facebook (FB), Intel (INTC), and Twitter (TWTR).

Here’s how things shook out by the end of the week:

Index comparison table for week ending July 27, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)


The top-performing S&P 500 sectors for the week: energy (+2.1%), financials (+2.1%), and industrials (+2%, with airline stocks leading the way). The worst-performing sectors were information technology (-1.1%), consumer discretionary (-0.5%), and real estate (-0.1%).

Not surprisingly, FAANG stocks were at the center of much of the market’s drama. A 3.5% jump by Alphabet (GOOG) on Tuesday helped propel the stock and the Nasdaq 100 (NDX) to new all-time highs. But Facebook’s (FB) roughly 20% decline after Wednesday’s earnings release brought tech shares back to earth on Thursday. (Lost in all the noise: Nielsen Holdings—NLSN, of Nielsen ratings fame—actually posted a bigger sell-off than Facebook on the same day, shedding 25% after its disappointing earnings release.) But Amazon’s (AMZN) solid earnings numbers helped push its shares to a new intraday record on Friday, although the stock closed well off its highs. National Oilwell Varco (NOV) did its part to pump up the energy sector with a 10% gain on Friday.

In the futures space, September WTI crude oil (CLU8) rallied to just shy of $70/barrel on Thursday before falling more than 1% on Friday and closing below $69. Gold spent most of the week consolidating around the previous week’s lows, trading between $1,216-$1,236 for the entire week.

The week ahead. This week has enough action on the economic front to give earnings a run for their money, with Wednesday (FOMC interest rate announcement) and Friday (jobs report) looming especially large:

Monday: Pending Home Sales Index

Tuesday: (FOMC meeting starts), Personal Income and Outlays, Employment Cost Index, S&P Corelogic Case-Shiller HPI, Chicago PMI, Consumer Confidence

Wednesday: ADP Employment Report, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending, FOMC meeting announcement

Thursday: Jobless Claims, Factory Orders

Friday: Employment Situation, International Trade, PMI Services Index, ISM Non-Manufacturing Index 

The third full week of earnings seasons will more or less keep pace with last week’s busy schedule. Here are a few of the names that will be reporting: 

Monday: Booz Allen Hamilton (BAH), Caterpillar (CAT), First Data (FDC), Seagate Tech (STX), Cognex (CGNX), Illumina (ILMN)

Tuesday: Archer-Daniels (ADM), BP (BP), Honda Motor (HMC), Pfizer (PFE), Procter & Gamble (PG), Ralph Lauren (RL), Shopify (SHOP), Sony (SNE), Vulcan Materials (VMC)

Wednesday: Automatic Data (ADP), Dominion Energy (D), Exelon (EXC), Groupon (GRPN), Humana (HUM), SodaStream (SODA), Spirit Aerosystems (SPR)

Thursday: Aetna (AET), Alibaba (BABA), CIGNA (CI), Clorox (CLX), DowDuPont (DWDP), EPAM Systems (EPAM), IntercontinentalExchange (ICE), Kellogg (K), NRG Energy (NRG), Spark Therapeutics (ONCE), Wayfair (W), Yum! Brands (YUM)

Friday: Cboe Global Markets (CBOE), Kraft Heinz (KHC), Toyota Motor (TM), Welltower (WELL)

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.

Futures contracts expiring this week include August natural gas (NGQ8) and August gasoline (RBQ8) on Tuesday; August eurodollar (EDQ8) on Wednesday. 

As the month turns. The middle of this week ushers in a new trading month. Since 1960, August has been a so-so month for the S&P 500, closing higher 59% of the time with an average monthly gain of 0.9%. But August has also tended to start weaker than almost all other months: Its first two trading days have, since 1960, closed higher less than 50% of the time, and both days have negative median returns.

 

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1 The Wall Street Journal. Small-Caps Are Surging, but Their Haven Status Is in Jeopardy. 7/24/18.

2 CNN.com. Trump and top European leader agree to work toward zero tariffs. 7/26/18.