Keeping things close
08/13/18

Well, it got close.

This week will start with traders still looking for the S&P 500 (SPX) to make a new record high after worries about Turkey’s financial crisis took some of the starch out of European and US equity markets late last week.

S&P 500 (SPX), 6/19/18 – 8/10/18. S&P 500 (SPX) daily price chart. Not quite a record high.

Source: OptionsHouse

The SPX climbed to within 0.33% of its record last Tuesday before pausing for a couple of days and then, on Friday, pulling back as Turkey’s financial crisis deepened: The Turkish lira fell 20% to a new all-time low as worries grew about the possibility of loan defaults and a contagion of banking woes, especially in certain European Union (EU) countries that have lent Turkey billions of dollars.1 On the same day, the White House announced it was doubling tariffs on Turkish steel and aluminum.2

But when the dust had settled, the US market’s losses on Friday were smaller those in Europe, and the SPX ended the week slightly lower amid continued strong earnings reports and mostly benign economic data. Small caps and tech, however, posted gains for the week. Here’s the index breakdown:

Index comparison table for week ending August 10, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)

Not surprisingly, last week’s sector action showed some evidence of a mild defensive shift at the end of the week, although tech managed to hang among the leaders. The top-performing S&P 500 sectors were consumer discretionary (0.8%), telecom services (+0.7%), and information technology (+0.3%). The worst-performing sectors were consumer staples (-1.9%), real estate (-1.8%), and industrials (-1%).

Highlight reel: The final busy week of the Q2 season provided plenty of big moves in stocks, but Tesla’s (TSLA) took the cake: Three days after the stock jumped more than 16% on a better-than-expected earnings release, it spiked another 11% (from $341.99 to $379.57) last Tuesday when CEO Elon Musk tweeted he was considering taking the company private at $420/share.3 Over the next two days, though, the stock erased the majority of Tuesday’s gain before bouncing back to around $355 on Friday. Real estate data firm Zillow (ZG) fell more than 16% on Tuesday (nearly 20% after hours on Monday) after releasing earnings and announcing it was buying Mortgage Lenders of America. 4

On the upside, SodaStream (SODA), purveyor of home carbonated-beverage machines, was beyond bubbly, extending the explosive rally that took off after its August 1 earnings beat for a net gain of more than $40 (45%) as of Friday. Online dating company Match Group (MTCH) jumped more than $11 (nearly 29%) on Wednesday and Thursday after outperforming its earnings estimates.

In the futures market, September WTI crude oil (CLU8) dropped slightly below the support level of its July swing low on Friday (around $66.30/barrel) before rallying intraday to close the week back above $67.50. December gold (GCZ8) wallowed all week near its recent lows between $1,210-$1,225/ounce.

The week ahead. In addition to assorted business metrics, this week’s economic calendar features Leading Indicators on Friday, as well as the July’s housing numbers (which have been weak in recent months):

Tuesday: NFIB Small Business Optimism Index, Import and Export Prices

Wednesday: Retail Sales, Productivity and Costs, Industrial Production, Atlanta Fed Business Inflation Expectations, Business Inventories, Housing Market Index

Thursday: Housing Starts, Philadelphia Fed Business Outlook Survey

Friday: Consumer Sentiment, E-Commerce Retail Sales, Leading Indicators

In terms of earnings, it’s one of those weeks at the end of the cycle with plenty of marquee names reporting, despite the light overall schedule. Lots of retail (including Macy’s), along with a few notable tech names:

Monday: JinkoSolar Holding (JKS), Sysco (SYY), HUYA (HUYA), Switch (SWCH), YY (YY)

Tuesday: Advance Auto (AAP), Home Depot (HD), Tapestry (TPR), Agilent (A), Canopy Growth (CGC), Cree (CREE), Myriad Genetics (MYGN), Nordstrom (JWN), NVIDIA (NVDA)

Wednesday: Macy's (M), Performance Food (PFGC), Cisco Systems (CSCO), NetApp (NTAP), Wal-Mart (WMT), 58.com (WUBA), Applied Materials (AMAT)

Thursday: Dillard's (DDS), J.C. Penney (JCP), JD.com (JD), The Children's Place (PLCE),

Friday: Deere (DE)

In addition to August equity options expiration on Friday, a few futures contracts are expiring this week:

●Monday: August Swiss franc (SFQ8), Russian ruble (RRQ8), and South African rand (ARQ8)

●Tuesday: August soybeans (ZSQ8), soybean oil (ZBOQ8), and soybean meal (ZSMQ8) on Tuesday.

Go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, economic reports and other market events.

Tick tock, tick tock: Since 1968, the S&P 500 has taken an average of 10 trading days (two weeks) to exceed a previous all-time high (that it made at least six months ago) after rallying to within 1% of it. The longest it took was 30 trading days, when it traded to within 1% of its March 24, 2000 record high on June 15, 2007, but didn’t exceed that high until July 16.5 As of Friday, it had been 12 trading days since the SPX first traded to within 1% of its January 26 record high on July 25.

 

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1 CNBC.com. If Turkey implodes, here's who else gets hurt. 8/10/18.

2 Bloomberg. Trump Authorizes Doubling of Tariffs on Turkey's Steel, Aluminum. 8/10/18.

3 MarketWatch. Tesla confirms intention to go private, sending stock up 11%. 8/7/18.

4 Fortune. Zillow Stock Plunges After It Says It's Buying an Online Mortgage Lender. 8/6/18.

5 Supporting document available upon request.