Major rotation as S&P 500 ends slightly down
06/12/17

Stocks tried to advance last week, but stalled as investors took profits in high-flying tech names.

The S&P 500 fell 0.3 percent between Friday, June 2, and Friday, June 9. The index hit a record high early Friday as volatility ground to its lowest levels since 1993. 

The real drama occurred in the Nasdaq-100, whose stalwarts like Apple (NASDAQ: AAPL), Amazon.com (NASDAQ: AMZN), and Facebook (NASDAQ: FB) had led the market higher for most of the year. But last week it slid 2 percent as investors seemed to shift capital into lagging financials and small caps. Global indexes also stalled as the U.S. dollar rebounded from eight-month lows.1

Ironically, the market’s big moves came after a handful of potentially big events passed with barely a ripple. President Trump endured hearings in the Senate, voters in the UK handed their prime minister a big defeat, and the European Central Bank made some changes to its policy stances.2

KBW Bank Index, 4-month chart

Source: OptionsHouse by E*TRADE

Most economic numbers were a yawn last week. Jobless claims and services data narrowly missed estimates, but remained at levels consistent with a growing economy. The oil glut also worsened as domestic energy production headed back towards the old peak in 1970.3 But there was some potentially positive news for the financial sector, with Congress looking to ease regulations.4 Mortgage applications to buy homes also rose to their best levels since 2010.5

Chip maker Advanced Micro Devices (NASDAQ: AMD) rose 13 percent last week, making it the best performer in the S&P 500. Retailers Signet Jewelers (NYSE: SIG) and Nordstrom (NYSE: JWN) followed with gains of 12 percent and 11 percent, respectively, clawing back from long-term lows.

Beer brewer Molson Coors (NYSE: TAP) found itself at the bottom of the totem pole, down 10 percent, on weak guidance. Biotechnolgy firm Incyte (NASDAQ: INCY) was second worst, dropping 9 percent.

Metals and energy also rose more than 2 percent last week, consistent with the apparent shift toward cyclical stocks. Safety plays like utilities and consumer staples tumbled more than 1 percent.

The big event this week will likely be the Federal Reserve’s interest-rate decision on Wednesday afternoon. (Oil inventories are due earlier that morning.) Thursday features jobless claims, regional-activity indexes from the New York and Philadelphia branches of the Fed, plus NAHB’s homebuilder index. There’s more housing on Friday morning (starts and permits), followed by consumer sentiment.

 

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1. CNBC: This stock market rotation could add some spark to Friday's trading. 6/9/17.

2. Reuters: ECB closes door on rate cuts but warns of weak inflation. 6/8/17.

3. CNBC: US oil output poised to hit 10 million barrels a day next year, breaking 1970 record, EIA says. 6/6/17.

4. Reuters: Republicans take knife to post-crisis Wall Street reforms. 6/8/17.

5. Bloomberg: U.S. Mortgage Applications Surge to a 7-Year High. 6/7/17.