January heats up
01/14/19

●US stocks approach January midpoint with strong gains

●Small caps have led the market so far this year

●Get ready for earnings


 

Considering how things looked less than a month ago, a lot of stock market bulls are probably thinking, “not bad.” Others may be thinking, “wow.”

Despite a government shutdown stalemate, another inconclusive trade summit, and worries about a Chinese economic slowdown, the US stock market is coming off of a third-consecutive up week, with the S&P 500 (SPX) just missing its first six-day win streak in almost a year because of Friday’s fractionally lower close.

S&P 500 (SPX), 9/27/18–1/11/19. S&P 500 (SPX) price chart. New Year’s rebound.

Source: Power E*TRADE


The market got off to another good start last Monday amid optimism about the latest US-China trade talks (which ended, as have others, without much in the way of tangible progress) and a continued rebound in crude oil. But the week’s news highlight may have been Wednesday’s FOMC minutes release, which reaffirmed that several committee members felt the Fed could “afford to be patient” about hiking interest rates1–potentially hopeful news for bulls worried about higher rates pressuring stocks.

The SPX followed through with another up day on Thursday, but hit the pause button on Friday as it (along with other indexes, as well as crude oil) approached the resistance represented by its late-2018 trading range.

But what was a solid week for the market as a whole was another gangbusters week for small-cap stocks, as the Russell 2000 (RUT) logged its biggest Monday-Friday return since December 2016, and racked up its first six-day win streak since last May. Here’s where the major US indexes stood at the end of the week:

US stock index performance table for week ending 1/11/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector action: Last week was green across the board. The top-performing S&P 500 sectors were industrials (+4.1%), real estate (+3.9%), and consumer discretionary (+3.7%). The worst-performing sectors were consumer staples (+0.6%), utilities (+0.8%), and financials (+1%).

Highlight reel: On Monday, California utility provider PG&E Corp. (PCG) tanked more than 20% on rumors it may consider filing for bankruptcy amid potential losses from the California wildfires.2 Tactile Systems Technology (TCMD) jumped as much as 26% on Tuesday after releasing moonshot preliminary full-year performance figures.

On Thursday, Macy’s (M) tumbled 18%—it’s worst day ever—after releasing sub-par holiday sales numbers and a gloomy outlook.3 On the same day, small-cap biopharma stock Amarin (AMRN) jumped 22% on buyout chatter.

Futures watch: Friday’s 1.7% downturn broke February WTI crude oil’s (CLG9) run of eight consecutive up days, but the market still ended the week with a $3 gain and a close above $51.50/barrel.

February gold (GCG9) spent the week in a holding pattern, consolidating between $1,280–$1,310/ounce and ending the week around $1,290.

Coming this week

Alright, start your engines—the first earnings season of the year is warming up, with financial names taking most of the initial laps around the track:

Monday: Citigroup (C)

Tuesday: First Republic Bank (FRC), IHS Markit (INFO), JPMorgan Chase (JPM), Synovus (SNV), UnitedHealth (UNH), Wells Fargo (WFC)

Wednesday: Bank of America (BAC), BlackRock (BLK), BNY Mellon (BK), Comerica (CMA), Goldman Sachs (GS), PNC (PNC), U.S. Bancorp (USB), Alcoa (AA), CSX (CSX), Kinder Morgan (KMI)

Thursday: BB&T Corp. (BBT), Fastenal (FAST), JB Hunt Trans (JBHT), KeyCorp (KEY), Morgan Stanley (MS), Taiwan Semiconductor (TSM), American Express (AXP), Atlassian (TEAM), Netflix (NFLX)

Friday: Citizens Financial Group (CFG), First Horizon (FHN), KC Southern (KSU), Regions Financial (RF) Schlumberger (SLB), State Street (STT), SunTrust Banks (STI), Synchrony Financial (SYF), V.F. Corp. (VFC)

On the economic front, some numbers will remain on ice until the government shutdown is resolved, including retail sales, inventories, industrial production, import/export prices, and some housing data. Reports that will not be released this week unless the shutdown ends are in parentheses:

Tuesday: Producer Price Index

Wednesday: Housing Market Index, Beige Book (Retail Sales, Import and Export Prices, Business Inventories)

Thursday: (Housing Starts)           

Friday: University of Michigan Consumer Sentiment (Industrial Production)                      

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.

A word is worth…um, a thousand words? Market sentiment is notoriously tricky to gauge and interpret, but one simple measure may shed some light on how average traders and investors have felt at some of the market’s recent low points. The following chart shows the popularity of “bear market” as a Google search term over the past five years:

Popularity of “bear market” as a Google search, 1/12/14–1/6/19. Blurb: Gauging sentiment with search

Source: Google.com


Searches on “bear market” hit their highest level on December 23, a day before the current correction reached its (to date) low point. Other relative highs are noted on the chart, including February 4, 2018—which had only around one-third as much interest in “bear market” as December 23. (For the record, the December 23 reading was also higher than the maximum reading from 2008, which occurred in July of that year.)

Those already checking out an SPX chart on Power E*TRADE may notice that, in addition to the fact that these previous “bear market” search highs occurred around significant market lows, in each case the SPX pulled back to test those lows before ultimately moving higher.               

 

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1 Bloomberg.com. Fed Minutes Reveal Caution on Rates Missing From Statement. 1/9/19.

2 Reuters: California utility PG&E explores bankruptcy filing: sources. 1/4/19.

3 CNN.com: Macy's stock has its worst day in history. 1/10/19.