Fed-ing frenzy
12/03/18

●Stocks soar as Fed chair hints at possibility of slower rate hikes

●Crude oil trades below $50 for first time since 2017

●Jobs report, manufacturing data—and another Powell speech—this week


 

Anyone wondering whether “words matter” need look no further than Wednesday’s speech by Fed Chairman Jerome Powell, which provided the catalyst for the S&P 500’s (SPX) biggest one-day gain (2.3%) since March, and helped the market put together its best overall week of the year.

Wednesday's rally was enough to catapult the SPX to its highest close in two weeks. The gist of Powell’s talk: He left open the possibility that the Fed may not hike rates as aggressively next year, depending on how various economic risk factors play out.

S&P 500 (SPX), 9/10/18–11/30/18. S&P 500 (SPX) price chart. Fed fuel.

Source: OptionsHouse


Stocks attempted to pad the rally after the release of FOMC minutes on Thursday, but after pushing to a higher high, the SPX closed slightly down on the day. On Friday, though, after a slow start, the market extended the bounce amid optimistic afternoon chatter about Saturday’s US-China trade talks in Buenos Aires.1

The buying spree also put November back in the plus column, and flipped the SPX and Dow back into the black for the year (the Russell 2000 missed by a hair). And tech roared back, with the Nasdaq 100 (NDX) jumping more than 6% on the week. Here’s how the major US indexes measured up:

US stock index performance table for week ending 11/30/18

Source: OptionsHouse (data)


Sector action: It was green across the board last week. The top-performing S&P 500 sectors were consumer discretionary (+6.4%), information technology (+6.1%), and health care (+5.9%). The worst-performing sectors were materials (+2.4%), utilities (+2.69%), and real estate (+2.73%). 

Highlight reel: Wednesday saw Wayfair (W) jump 14.5% and Salesforce.com (CRM) climb 10%, while Tech Data blasted 24% (TECD) higher on Thursday. On the downside, on Thursday Tiffany (TIFF) shed 12% and Quest Diagnostics (DGX) lost 9.24%.

Futures watch: Wrapping up its worst month in a decade, crude oil did a lot of dancing around the psychologically important $50/barrel level. January WTI crude oil futures (CLF9) fell to a nearly 14-month low of $49.41 early on Thursday but rallied to close above $51, then dipped below $50 again on Friday before closing out the week a little below $51.

The cyrpto rout hit a new low: December bitcoin futures (BTCZ8) dropped to $3,505 last Monday—more than 80% below December 2017 levels—before ending the week around $3,930.

The week ahead

Saddle up, it’s a new month. That means a jobs report is coming on Friday, after lots of manufacturing numbers—and another Jerome Powell speech:              

Monday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending             

Tuesday: Motor Vehicle Sales, Australia GDP                        

Wednesday: Productivity and Costs, PMI Services Index, ISM Non-Manufacturing Index, Jerome Powell Speaks, Beige Book

Thursday: International Trade, Factory Orders

Friday: Employment Situation (jobs), Consumer Sentiment, Wholesale Trade, Consumer Credit, Eurozone GDP

Earnings this week include:

Monday: Finisar (FNSR), Coupa Software (COUP)

Tuesday: AutoZone (AZO), Dollar General (DG), Guidewire Software (GWRE), HealthEquity (HQY), Hewlett Packard Enterprise (HPE), Ollie's Bargain Outlet (OLLI), RH (RH), Toll Brothers (TOL)                 

Wednesday: American Eagle (AEO), G-III Apparel (GIII), Momo (MOMO), Five Below (FIVE), H&R Block (HRB), lululemon athletica (LULU)

Thursday: Kroger (KR), Michaels Stores (MIK), Patterson Companies (PDCO), DocuSign (DOCU), Broadcom (AVGO), Ulta Beauty (ULTA)

Friday: Big Lots (BIG)

Go to the E*TRADE market calendar (logon required) for an up-to-date earnings schedule, along with a complete list of splits, dividends, IPOs, economic reports, and other market events. The Active Trader Commentary also lists earnings announcements and economic report times every day.

2018’s last hurrah: It’s December, which since 1960 has had the S&P 500’s highest average monthly return (+1.47%). In the most recent 25 years, however, December’s 1.29% average return has been fairly middle of the road, checking in at no. 5, even though the month has closed higher 19 times (76% of the time).

Also, since 1960 the SPX has closed lower on the first trading of December (today) more often than it has closed higher (55% down vs. 45% up)—the only month besides August with that distinction.

This time, though, the news out of Buenos Aires will likely dictate whether this tendency plays out today—and whether this December keeps up its generally bullish ways.

 

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1 CNBC.com. Dow rises 100 points on hopes of a US-China trade deal at G-20 summit. 11/30/18.