It’s just one week (four trading days, actually), but so far 2018 feels a lot like 2017: new highs, low volatility, and tech strength.
Although you may be tempted to call it a classic New Year’s rally, it was really more than that. Yes, the market closed out the first week of 2018 with a gain, but it also did it with style: The S&P 500 (SPX) banged out four consecutive record highs to start the year.
It’s only the eighth time in the past 60 years the SPX has kicked off a year with four straight higher closes, and it’s the first time since 1964 each of those closes has represented a record. Oh, almost forgot: The Dow Jones Industrial Average (DJIA) closed above 25,000 for the first time on Thursday.
For the week, the S&P 500 (SPX) closed up 2.6% to 2743, the Russell 2000 (RUT) rallied 1.6%, and the Dow rallied 2.3%. Following through on their 2017 outperformance, tech stocks led the way in the New Year, with the Nasdaq 100 (NDX) gaining 4%. The CBOE volatility index (VIX) fell below 9.00 on consecutive days (Wednesday and Thursday) for the first time in its history, and ended the week at 9.2.
While manufacturing and construction spending data released last week were very strong, many observers viewed Friday’s jobs report as a miss: Unemployment was unchanged (4.1%), but non-farm payrolls (148,000) were lower than expected. (The prior month’s number was revised higher, though.)
Information Technology (+4.2%) was the top-performing S&P sector in the first week of the year, followed by Materials (+4%) and Energy (+3.9%, goosed by an upsurge in crude prices and, briefly, natural gas). The worst-performing sectors were Utilities (-2.5%), Real Estate (-1.9%), and Telecom Services (-1.3%).
This week’s sparse lineup of economic releases (nothing of note on Monday or Tuesday) is highlighted by inflation-related data:
●Wednesday: Wholesale Trade, Import and Export Prices, Atlanta Fed Business Inflation Expectations.
●Thursday: Producer Price Index (PPI).
●Friday: Consumer Price Index (CPI), Retail Sales, Business Inventories.
Earnings to keep an eye on this week include:
●Monday: Limoneira (LMNR).
●Tuesday: Acuity Brands (AYI), Schnitzer Steel (SCHN), Synnex (SNX).
●Wednesday: Lennar (LEN), MSC Industrial (MSM), Supervalu (SVU), KB Home (KBH).
●Thursday: Delta Air Lines (DAL), Shaw Communications (SJR).
●Friday: BlackRock (BLK), First Horizon (FHN), JPMorgan Chase (JPM), PNC (PNC), Wells Fargo (WFC).
“Out with the old, in with the new” pointed out that seasonal tendencies based on a small number of examples (like the “January Effect”) need to be taken with a grain of salt, but for what it’s worth, in seven of the eight years that began with four consecutive higher closes, the SPX did post a net gain over the next five days. But the two most recent of these years, 2006 and 2010, show that what goes up quickly can come down just as fast.