Large caps live large

●Dow and S&P end last week with record highs

●Market shrugs off early-week trade-war jitters

●FOMC interest rate decision and GDP on deck this week


For the first time this year, the US stock market is kicking off a week with all its major indexes above their late-January highs, and with the S&P 500 (SPX) and Dow Jones Industrial Average (DJIA) fresh off back-to-back records.

The Dow became the final major US index to top its pre-correction peak when it hit 26,697.49 on Thursday and closed at 26,656.98—a 144-trading-day comeback odyssey that was capped by a three-day, 2.3% spurt at the tail end that put it over the top:

Dow Jones Industrial Average (DJIA) and S&P 500 (SPX), 1/5/18–9/21/18. S&P 500 (SPX) daily price chart. Gapped to record highs.

Source: OptionsHouse

Overall, it was a rare week of large-cap dominance in a market that has more often taken its lead from tech and small-cap stocks this year. The SPX also made successive new record highs on Thursday and Friday, and posted the week’s second-largest percentage gain.

The week didn’t necessarily start off looking like it was going to result in new records. Stocks turned lower on Monday as the US and China again exchanged tariff blows—the White House announced new duties on $200 billion of Chinese imports, and China ultimately retaliated with penalties on $60 billion of American goods. Tech and small-caps gave back the most, with the Nasdaq 100 (NDX) and Russell (RUT) both falling more than 1% on the day.

But in what may have been another instance of trade-war news turning out to be a buying opportunity, Tuesday marked a reversal of market fortune. Reports confirmed that the US tariffs would be assessed at 10% rather than 25%, as was initially feared (although the White House stated it would raise them to the higher level in January if China doesn’t make trade concessions).1 Even China’s announcement of counter-tariffs didn’t seem to dampen the market’s enthusiasm, and the Dow kicked off its three-day Run for the Roses.

The market appeared to be experiencing a bit of fatigue on Friday, though. Although the Dow closed at a new high, the SPX closed more or less flat (after making another intraday record high), and the NDX and RUT slipped into the red. Here’s how the US indexes stacked up last week:

US stock index performance table for week ending 9/21/18

Source: OptionsHouse (data)

Sector action: Reflecting the week’s large-cap theme, the top-performing S&P 500 sectors were materials (+2.3%), financials (+2.3%), and energy (+2%). The worst-performing sectors were utilities (-1.5%), real estate (-0.4%), and information technology (-0.1%).

Highlight reel: Despite the new index records, market headlines were monopolized for much of the week by Canadian cannabis company Tilray’s (TLRY) moon shot and subsequent crash landing. The stock, which heading into last week had already gained 387% since its July 19 IPO at $22.39, shot up 10% on Monday, 29% on Tuesday, and 93% intraday on Wednesday—hitting $300—before pulling back nearly $150 at one point and closing the day with a 38% gain. The stock then tumbled 18% on Thursday and 26% on Friday, closing at $123—off $177 (59%) from Wednesday’s high.

Futures action: November WTI crude oil (CLX8) traded above resistance around $71/barrel, but after hitting $71.80 on Friday, pulled back to close around around $70.85.

December corn (ZCZ8) and November soybeans (ZSX8) both broke down to new contract lows last week before rebounding on Thursday and Friday.

Breakout watchers can still only watch: December gold (GCZ8) extended its consolidation, spending the entire week between $1,196–$1,216/ounce—which also happened to be Friday’s high-low range.

The week ahead

Wednesday, 2 p.m. ET, FOMC interest rate announcement—be there or be square. But there are also more housing numbers coming, and Thursday will be an especially busy news day, with GDP and several other notable numbers:

Monday: Chicago Fed National Activity Index, Dallas Fed Manufacturing Survey  

Tuesday: S&P Corelogic Case-Shiller HPI, FHFA House Price Index, Consumer Confidence, (FOMC meeting begins)

Wednesday: New Home Sales, FOMC meeting announcement

Thursday: Durable Goods Orders, GDP, International Trade in Goods, Corporate Profits, Retail Inventories, Wholesale Inventories, Pending Home Sales Index, Germany CPI, China PMI Manufacturing Index

Friday: Personal Income and Outlays, Consumer Sentiment, Germany Unemployment Rate, Great Britain GDP, Canada Monthly GDP       

A few high-profile names are scattered throughout a light week of earnings:             

Tuesday: (Carnival CCL), IHS Markit (INFO), Jabil (JBL), Cintas (CTAS), KB Home (KBH), NIKE (NKE)

Wednesday: Actuant (ATU), CarMax (KMX), USA Tech (USAT), Bed Bath & Beyond (BBBY), H.B. Fuller (FUL)

Thursday: Accenture (ACN), ConAgra (CAG), McCormick (MKC)

Friday: BlackBerry (BB), MiMedx Group (MDXG)

And a few futures expirations to be aware of: October RBOB gasoline (RBV8) and October sugar (SBV8) on Tuesday, and September 30-Day Fed funds (FFU8) on Friday.

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.

Another history-defying month? The four-day losing streak at the beginning of the month made it look like September wanted to live up to its bearish reputation, but the SPX has rallied more than 4% since September 7. There’s still five days to go in the month, but if September had ended on Friday, it would have notched a 1% return—not bad, considering the index’s average from 1964 to last year was -0.4%.


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1 Trump will slap 10% tariffs on $200 billion in Chinese goods — and they will go to 25% at year-end. 9/18/18.