Goldilocks not done yet
08/07/17

Stocks continue to nudge record highs as investors settle into a market that feels just right.

The S&P 500 rose 0.2 percent between Friday, July 28, and Friday, August 4–the fourth positive week in the last five. Even more buzz centered on the Dow Jones Industrial Average’s relentless march into record territory. Volatility also remained near multiyear lows despite a heavy flow of economic and company news.

To put it simply, Goldilocks won't go away. Corporate profits are growing after a long retrenchment, inflation is tame, employment is strong, and the global picture keeps getting healthier.1 Last week, for instance, featured better-than expected job growth and decent housing data.2 Tech mega-cap Apple (NASDAQ: AAPL) shot to new highs on a blowout quarter.3 Even crude oil managed to hold its ground.

Banks had an august showing, making financials the best sector with a gain of almost two percent. The group didn't have much news in the week but have enjoyed a steady drum beat of positive headlines since late June. Chart watchers have also been cheering positive signals on some major names in the space. 

"The current level of interest rates is abnormally low," venerable central banker Alan Greenspan told investors, predicting a "reasonably fast" increase that isn't yet anticipated in the market.4 If he's right, analysts have argued banks stand to benefit from the move.5 After all, the 2008 financial crisis is pretty far in the past.

S&P 500, 2/10/17 - 8/4/17

Source: OptionsHouse by E*TRADE

Speaking of 2008, housing stocks also gained more than one percent last week and are still pushing their peaks from the middle of last decade.

Turning to individual stocks, fertilizer company CF Industries (NYSE: CF) and genetic-testing firm Illumina (NASDAQ: ILMN) were the S&P 500's top performers with 11 percent gains following their results. Chemical maker FMC (NYSE: FMC) took the No. 3 spot, up 10 percent.

Energy led to the downside following a strong showing the previous week. Sector members like Range Resources (NYSE: RRC) and Pioneer Natural Resources (NYSE: PXD) also had the biggest losses in the S&P, dropping 18 percent and 16 percent, respectively. 

The events calendar slows this week, with fewer quarterly results and economic reports. Today and tomorrow are pretty quiet, although there may be news on energy as major drilling countries meet in Abu Dhabi. Marriott (NYSE: MAR) reports tonight, followed the next afternoon by Walt Disney (NYSE: DIS), and Priceline (NASDAQ: PCLN). Wednesday brings crude-oil numbers from the U.S. government, while Thursday features initial jobless claims and Nvidia (NASDAQ: NVDA) financials. Earnings come and earnings go. Dog days of summer, here we come.

 

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1. Wall Street Journal: U.S. Companies Post Profit Growth Not Seen in Six Years. 7/30/17. CNBC: 'The bull market could continue forever' — strategist Jim Paulsen outlines conditions. 8/4/17. Reuters: China factory activity accelerates in July on strong export orders: Caixin PMI. 7/31/17. CNBC: Insana: Thank global growth for Dow 22,000, not Trump. 8/2/17.

2. Business Insider: Jobs report beats expectations, unemployment rate returns to 16-year low. 8/4/17. RTT News: U.S. Pending Home Sales Rebound More Than Expected In June. 7/31/17.

3. Barron's: Apple Jumps 5%: FYQ3 Beats, Q4 Rev View Tops Consensus. 8/1/17.

4. Bloomberg: Greenspan Sees No Stock Excess, Warns of Bond Market Bubble. 8/1/17. CNBC: Greenspan: Bond bubble about to break because of 'abnormally low' interest rates. 8/4/17.

5. CNBC: Some spot a rare buying opportunity in bank stocks. 7/17/17.