Cross currents beneath market’s calm surface?
06/26/17

The market looked calm at first glance last week, but cross currents swirled beneath the surface.

The S&P 500 rose just 0.2 percent between Friday, June 16, and Friday, June 23. Volatility stayed near multiyear lows, bled dry by strong demand for stocks and solid economic data. It was also the first week in recent memory that the S&P 500 hit a new high without the Nasdaq following.

But below the surface, rotation between sectors left a few traders’ heads spinning. Biotechnology and health care stocks shot up the rankings amid hopes that legislative actions are unlikely to hurt business. Money also streamed into metals as investors looked for the White House to support steelmakers and central bankers talked down interest rates.1

To the downside, can anything fix the massive glut in oil? Not this week, traders said as crude slammed to a 10-month low. Energy stocks shriveled a collective 3 percent and remain the only major sector with a loss on the year. Financials also slid about 2 percent last week.

Economic news? More like snooze! Jobless claims missed estimates slightly but are still near the lowest levels since bell-bottoms were in style. New and existing home sales beat forecasts. Things were a bit more interesting across the pond as France revised up its economic growth and eurozone consumer confidence hit its best level since 2001. Not much to write home about…

Semiconductor maker Advanced Micro Devices (NASDAQ: AMD) was the S&P 500’s top gainer on the week, surging 24 percent. Analysts said its turnaround still has room to run. They also gushed about its Epyc chip and the potential for winning customers from rival Intel (NASDAQ: INTC).2

Incyte (NASDAQ: INCY) was our silver medalist, up 15 percent. While it didn’t make any headlines last week, the drug developer rose along with other biotechs and had pulled back sharply following positive data a month before.3

S&P 500, 3-month chart

Source: OptionsHouse by E*TRADE

Bed Bath & Beyond (NASDAQ: BBBY) led to the downside. It dropped 16 percent on the week and has now erased almost its entire post-2009 bounce. Traditional brick and mortar is certainly singing the blues as shopping moves online.

Debt-laden oil and gas driller Chesapeake Energy (NYSE: CHK) was the second worst performer, down 10 percent last week, amid a key downgrade and the broader sell-off in crude.4

Looking towards the future, this week will mark the end of the second quarter and looks a bit more interesting in terms of events. 

Durable-goods orders are due this morning, followed tomorrow by consumer confidence and the Case-Shiller Home Price Index. Wednesday features mortgage applications, pending home sales, and EIA’s oil-inventory report. 

The Commerce Department will publish its final revision to gross domestic product on Thursday morning and the Labor Department is slated to release weekly jobless claims. Walgreens Boots Alliance (NASDAQ: WBA) reports earnings in the premarket, while Nike (NYSE: NKE) and Micron Technology (NASDAQ: MU) are due in the afternoon. Friday brings personal income and spending.

But let’s get real. Traders won’t be expecting much excitement because Monday, July 3, is a half day, followed by a holiday on the 4th. Can anyone say four-day weekend?

 

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1. Bloomberg: Trump Plans to Take ‘Bold Action’ on Steel Imports, Wilbur Ross Says. 6/19/17. The Times of India: Steel solid as Deutsche upgrades US Steel, AKS Holding to buy. 6/23/17. Marketwatch: Fed's Evans says possible there will be no more rate hikes this year. 6/19/17. Reuters: Fed's Kaplan says has 'open mind' on more rate hikes this year. 6/20/17. Reuters: Hold off on further rate hikes until inflation moves -Fed's Bullard. 6/23/17.

2. TheStreet: Advanced Micro Devices Stock Explodes After Revealing Details on This Epic New Super Chip. 6/21/17. Barron's: Advanced Micro Devices: Bears ‘Denying Reality’ of Potential Against Intel, Says Rosenblatt. 6/23/17.

3. Incyte press release: New Data for Presentation at ASCO 2017 Reinforce Clinical Profile of Epacadostat in Combination with Keytruda (pembrolizumab). 5/17/17.

4. Marketwatch: Chesapeake Energy's stock sinks after Macquarie turns bearish. 6/21/17.