Earnings, yields drive stock swings
After yet another up-and-down week that saw the S&P 500 (SPX) close near the middle of its recent consolidation, traders have a busy week of earnings—and economic data—to chew on. A fizzled intraday rally on Friday kept the SPX from recording a third-straight up week (but just by a hair), as reactions to corporate earnings and worries about Treasury yields seemed to keep the market off balance for much of the week.
SS&P 500 (SPX), 12/1/17 – 4/27/18. S&P 500 daily chart.

Source: OptionsHouse

One of the bigger macro stories last week was the long-anticipated, much-dreaded breakthrough of the 3% Treasury yield threshold on Tuesday. It wasn’t above 3% for long (and closed the day below it), but the level lived up to its reputation as a stock killer—if only for one day. As the following two-minute SPX chart shows, the market was up in early trading on Tuesday before the yield ticked above 3% around 9:45 a.m. ET:
S&P 500 (SPX), 4/23/17 – 4/24/18. S&P 500 2-minute chart. 10-year yields topped 3%, stocks dropped

Source: OptionsHouse

But what a difference a day seemed to make: The yield was above 3% all day Wednesday, and the SPX managed to close up on the day after making a lower low. By the end of the week, the 10-year yield had fallen to around 2.96%.

After a small rebound on Wednesday—and a big one on Thursday—the market didn’t quite have enough left in the tank to push the week into the black on Friday, despite a solid 2.3% GDP reading. Here’s how the major US indexes stacked up:

US Stock Index Comparison table for week ending April 27, 2018

On the sector front, the market continued to churn through leading and lagging groups. The top-performing S&P 500 sectors last week were Real Estate (+2.7%), Utilities (+2.7%), and Health Care (+1.8%). The worst performing sectors were Industrials (-3.2%), Materials (-2%), and Financials (-0.6%).

There were some wild rides among individual stocks, especially the FAANG names that released their quarterly numbers. Alphabet (GOOG) dropped 4% on Tuesday despite topping its Q1 earnings by a wide margin, while Amazon (AMZN) tumbled even more the same day—then jumped 3.6% on Friday (but closed near the bottom of the day’s range) after crushing its numbers. Embattled Facebook (FB) notched a big earnings beat of its own on Wednesday—and screamed 9% higher on Thursday. Overall, as of Friday 79% of S&P 500 companies had beaten their Q1 earnings estimates.1

In futures, June gold (GCM8) retreated toward the bottom of its 2018 trading range, around $1310/ounce, while June crude oil (CLM8) remained in a holding pattern most of the week, hanging around the $68/barrel level.

It’s a busy news week—lots of manufacturing numbers, along with a Fed rate announcement on Wednesday, and the jobs report on Friday:

  • Monday: Personal Income and Outlays, Pending Home Sales Index
  • Tuesday: FOMC meeting begins, Motor Vehicle Sales, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending
  • Wednesday: ADP Employment Report, FOMC meeting announcement
  • Thursday: International Trade, Productivity and Costs, PMI Services Index, Factory Orders, ISM Non-Manufacturing Index
  • Friday: Employment Situation

This is a monster week for earnings—Apple (AAPL) to Tesla (TSLA), and hundreds more. The E*TRADE market calendar (logon required) has the up-to-date schedule, along with a complete list of splits, dividends, IPOs, and other market events. Here are some of the earnings on tap:

  • Monday: McDonald's (MCD), ON Semiconductor (ON), Akamai Tech (AKAM), Cognex (CGNX)
  • Tuesday: Aetna (AET), BP (BP), GrubHub (GRUB), Marathon Petroleum (MPC), Merck (MRK), Pfizer (PFE), Seagate Tech (STX)
  • Wednesday: AmerisourceBergen (ABC), Bio-Techne (TECH), Garmin (GRMN), Humana (HUM), MasterCard (MA), Spire (SR), Wayfair (W), Yum! Brands (YUM), Kraft Heinz (KHC), NXP Semi (NXPI), Spotify (SPOT), Square (SQ), Tesla (TSLA)
  • Thursday: Cardinal Health (CAH), CIGNA (CI), DowDuPont (DWDP), Global Payments (GPN), Kellogg (K), Regeneron Pharma (REGN), Teledyne Tech (TDY), Activision Blizzard (ATVI), Arista Networks (ANET), Fluor (FLR), Microsemi (MSCC), Overstock.com (OSTK)
  • Friday: Alibaba (BABA), Aon (AON), Cboe Global Markets (CBOE), Celgene (CELG)

Don’t go away, it’s only May. Some additional insights regarding the “Sell in May and go away” phenomenon: If investors do go away in May, they apparently don’t do it right away. The first two trading days of the month have been pretty bullish—the SPX has closed up 59% and 68% of the time, respectively, with average returns of 0.26% and 0.12%. But the next two days both closed down more than 55% of the time and had negative average returns. (Wednesday’s FOMC announcement and Friday’s jobs report may have an impact on whether these tendencies play out this year, though.)

Finally, after the 17 times since 1960 that April has closed down, May has closed higher only eight times (47%). In contrast, after the 41 times April closed up, May closed higher 26 times (63%).


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1 ThomsonReuters. The S&P 500 Earnings Scorecard. 4/27/18.