Market votes yea

●Stocks surged in aftermath of US midterm elections

●Large-caps assumed leadership

●Crude oil selloff deepened


Now that the midterm elections are out of the way, it’s time to start thinking about the 2020 presidential election and what it could mean for the markets.

Just kidding. With apologies to those still trying to recover from acute cases of election poisoning, it must be noted that last week’s market action appeared to be driven in large part by the midterms, with the takeaway being the US stock market likes a divided congress.

Stocks followed up on their October 20–November 2 rebound with a second-consecutive up week, with strong gains on Tuesday and especially Wednesday as Democrats regained control of the House while Republicans solidified their hold on the Senate. The S&P 500 (SPX) rallied 2.1% on Wednesday while the Nasdaq 100 (NDX) boomed 3% higher, overshadowing the week’s biggest piece of non-election political news: the firing—sorry, resignation—of Attorney General Jeff Sessions.

S&P 500 (SPX), 8/21/18–11/9/18. S&P 500 (SPX) price chart. Up post-election, down post-Fed.

Source: OptionsHouse

The market gave back some ground Thursday and Friday, though—perhaps just a natural pullback after such a strong up move, but likely aided by the Federal Reserve’s Thursday afternoon announcement that laid the groundwork for a final 2018 rate hike next month (and more next year). The SPX’s rebound stalled right around the level of the mid-October swing high (chart above).

Large-cap stocks provided the foundation for the week’s rally, with the Dow Jones Industrial Average (DJIA) and SPX coming out on top among US indexes. Small caps reverted to market laggard, and although tech shares had middling performance, the week’s net gain was enough to put the Nasdaq 100’s (NDX) year-to-date return back into double digits. Here’s the roundup:

US stock index performance table for week ending 11/9/18

Source: OptionsHouse (data)

Sector action: The top-performing S&P 500 sectors last week were health care (+4%), real estate (+3.6%), and utilities (+3.1%), the latter two jumping into their slots on a defensive shift during Friday’s pullback. The weakest sectors were communication services (-0.2%), energy (+1%), and information technology (+1.4%).

Highlight reel: E-learning tech firm 2U (TWOU) fell more than 21% intraday after beating earnings on Tuesday, but rebounded nearly 7% Wednesday. And there was lots of action on Thursday in the wake of earnings announcements: TripAdvisor surged more than 15% on Thursday to its highest level in more than two years, Wynn Resorts (WYNN) tumbled 13%, and Scientific Games (SGMS) jumped 25% on Thursday before giving back a 9% chunk on Friday.

Futures watch: While the stock market continues to attempt a rebound, oil keeps slip-slidin’ away: Crude oil extended its deepest selloff in more than two years, falling below $60/barrel for the first time since February. December WTI crude futures (CLZ8) ended last week with a 10th-straight down day, closing around $59.85.

After pulling back early in the week, December US dollar index futures (DXZ8) staged a Thursday-Friday rally (in the wake of the Fed announcement) that pushed the buck back toward its 16-month highs around 97.00.

The week ahead

A light economic calendar features some inflation data, along with business and industrial stats at the back end of the week:               

Monday: Veterans Day (bank/Treasury holiday)

Tuesday: NFIB Small Business Optimism Index

Wednesday: CPI, Atlanta Fed Business Inflation Expectations          

Thursday: Retail Sales, Empire State Manufacturing Survey, Import and Export Prices, Business Inventories

Friday: Industrial Production

The number of earnings announcements ratchets down this week, but there are still several high-profile names reporting, including retail (WMT, HD, M) and a couple of the Canadian cannabis companies (CGC, TLRY) that caused such a ruckus several weeks ago:

Monday: Autohome (ATHM), Aecom Tech (ACM), AXA Equitable (EQH), UGI Corp (UGI), Veritone (VERI), YY (YY)

Tuesday: Advance Auto (AAP), Aramark (ARMK), Home Depot (HD), Tyson Foods (TSN), Canopy Growth (CGC), Tilray (TLRY), (WIX)

Wednesday: Macy's (M), Weibo (WB), Cisco Systems (CSCO), Copa Holdings (CPA), NetApp (NTAP), Netease (NTES), Williams-Sonoma (WSM)

Thursday: Energizer (ENR), Spire (SR), Wal-Mart (WMT), America's Car-Mart (CRMT), Applied Materials (AMAT), Nordstrom (JWN), NVIDIA (NVDA), Post (POST)

Friday: Helmerich & Payne (HP), Viacom (VIAB)

Futures contracts expiring this week include November rice (RRX8) and November soybeans (ZSX8).

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.

As the month turns: During a light week of scheduled economic news and a thinning earnings calendar, it will be interesting to see where market catalysts emerge and whether stocks can sustain last week’s overall upside momentum. (Keep an eye on trade-war rhetoric and that 10-year Treasury yield.)

The middle of November has been, on average, the SPX’s least bullish (but still positive) portion of the month over the past 50 years. (Also, the seventh and eighth trading days of November—Friday and today—are the only two days in the first half of the month with negative average returns.) Historically, November has tended to kick into a higher bullish gear in the third week of the month.


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