Market passes first test

●Fourth-straight up week for US stock market

●Large caps warm up, small caps cool down (a little)

●Markets on watch to see if trade deal is for real


Heading into the back end of January, the US stock market is enjoying one of its best starts to a year…ever?

Yeah, pretty much. More on that later.

A positive start to earnings season—spearheaded by bank stocks—got a boost from renewed optimism about a trade-war resolution. The result: The fourth-straight up week for the S&P 500 (SPX), which has now erased more than half of its October-December correction.

S&P 500 (SPX), 8/27/18–1/18/19. S&P 500 (SPX) price chart. More than half-way there.

Source: Power E*TRADE

Along the way, the market shrugged off Brexit drama, the ongoing government shutdown, and some poor housing market data. As the week was winding down, rumors, and then reports, of progress in the US-China trade impasse—specifically, a Chinese proposal to increase its imports of US goods over the next six years1—pumped up the market late Thursday and Friday.

All major US indexes notched strong gains for the week, although the year-to-date market leader, the small-cap Russell 2000 (RUT), slid to the back of the pack while large caps pushed to the fore:

US stock index performance table for week ending 1/18/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE

Sector action: The top-performing S&P 500 sectors were financials (+5.9%, moving from worst to first), industrials (+3.1%), and energy (+2.6%). The worst-performing sectors were utilities (-0.4%), consumer staples (+1.4%), and communication services (+1.6%).

Highlight reel: California utility provider PG&E Corp. (PCG) continued to implode, dropping more than 50% on Monday. On Thursday, Signet Jewelers (SIG) took a -25% hit after reporting weak holiday sales and downgrading its 2019 outlook.

Netflix (NFLX) dropped around 5% in Thursday’s post-market session after releasing its quarterly numbers (beat on earnings and subscriber growth, missed on revenues1), and despite attempting to rally intraday on Friday, closed down -4%.

Futures watch: February WTI crude oil (CLG9) broke out of its trading range on Friday with a nearly 3%-plus gain that took prices close to $54/barrel.

February gold (GCG9) broke out of the narrowest portion of its consolidation on Friday—in the opposite direction of crude—dropping to its January 4–9 lows around $1,280/ounce.

While it may seem like the Brexit saga is destined to last longer than the Dr. Who franchise, one chapter closed last week: the UK Parliament’s vote on Prime Minister Theresa May’s Brexit plan (got crushed on Tuesday) and the no-confidence vote in May’s government (she squeaked by on Wednesday). Although some market watchers had expected the British currency to suffer in the aftermath of the parliamentary vote, March British pound (6BH9) futures responded with an intraday rebound on Tuesday and rallied above 1.3000 by Thursday—their highest level since November 15—before falling 1% on Friday.

Coming this week

After last week’s blistering start to earnings season, airlines, pharma, railroads, and tech start rolling in this week:

Monday: Market Holiday: Martin Luther King Jr. Day

Tuesday: Fifth Third (FITB), Halliburton (HAL), Johnson & Johnson (JNJ), Prologis (PLD), Steel Dynamics (STLD), Travelers (TRV), Capital One (COF), IBM (IBM), Wynn Resorts (WYNN), Zions Bancorp (ZION)

Wednesday: Abbott Labs (ABT), Comcast (CMCSA), Kimberly-Clark (KMB), Procter & Gamble (PG), United Tech (UTX), Canadian Pacific (CP), F5 Networks (FFIV), Ford Motor (F), Lam Research (LRCX), Teradyne (TER), Texas Instruments (TXN), Xilinx (XLNX)

Thursday: American Airlines (AAL), Bristol-Myers (BMY), JetBlue Airways (JBLU), Southwest Air (LUV), Textron (TXT), Union Pacific (UNP), Alaska Air (ALK), Intel (INTC), Norfolk Southern (NSC)

Friday: AbbVie (ABBV), Air Products (APD), Colgate-Palmolive (CL), D.R. Horton (DHI), Lear (LEA), NextEra Energy (NEE), Synchrony Financial (SYF)

Some economic data remains on hold while the government shutdown persists. Reports that will not be released this week unless the shutdown ends are in parentheses:

Monday: Market Holiday: Martin Luther King Jr. Day

Tuesday: Davos World Economic Forum, Japan Bank of Japan Announcement, Existing Home Sales

Wednesday: FHFA House Price Index       

Thursday: European Union ECB Announcement, Leading Indicators

Friday: (Durable Goods Orders, New Home Sales)

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.

Making the grade. If the first 13 trading days of the year were a test, 2019 would be getting an “A”—even if graded on a curve. The SPX’s year-to-date return as of Friday was 6.54%, bigger than the 13-day return in all but three years since 1950—that places it at the 97th percentile, and marks the third-straight day it’s been above the 90th percentile.

Not bad for the year’s first pop quiz.

Of course, there’s also a potential cautionary tale in such strong momentum. Last year, for example, the SPX’s year-to-date return was above the 90th percentile for nine consecutive days leading up to the January 26 market top. (At day 13 last year, by the way, the SPX was up 5.1%.)

That’s doesn’t mean another correction is imminent, but experienced traders know markets don’t move straight up indefinitely.


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1 China Offers Path to Eliminate U.S. Trade Imbalance, Sources Say. 1/18/19.

2 Here's what every major analyst had to say about Netflix's mixed earnings report. 1/18/19.