Russell finds its mojo
05/21/18

Last week was a Tale of Two Markets, as in, the Russell 2000 and “everything else.”

The combination underscores the market’s continued search for broad-based, sustained buying nearly four months after the major US indexes peaked in late January. Although the S&P 500 (SPX) closed last week pretty close to halfway between its January high and February low, the Russell 2000 (RUT)—the market laggard from last year that has quietly been playing catch-up the past several weeks—broke out above resistance and hit consecutive record highs on Wednesday, Thursday, and Friday (top half of chart):

Russell 2000 (RUT) and S&P 500 (SPX), 11/7/17 – 5/18/18. Russell 2000 daily price chart. S&P 500 daily price chart.

Source: OptionsHouse

The move made the RUT the best-performing US index last week—the only one to finish in the green, in fact—and left it less than one-and-a-half percentage points behind the Nasdaq 100 (NDX) for the year-to-date lead (+5.93% vs. 7.35%).

The SPX and other US benchmarks closed out the week with modest losses, as sustained upside pressure in Treasury yields and dimmer prospects of a deal with North Korea may have intermittently taken some of the starch out of the broader market. But the fact that the indexes didn’t turn sharply lower immediately after establishing another swing high may be an encouraging departure from the pattern of the past few months.

The 10-year Treasury yield pushed back above 3% on Tuesday, crossed 3.1% on Thursday, and closed the week at 3.06%. Stocks mostly shrugged off the yield issue on Wednesday, but wobbled on Tuesday and Thursday. Here’s how the US indexes stacked up last week:

Index comparison table for week ending May 18, 2018. S&P 500, Nasdaq 100, Russell 2000, Dow Jones Industrial Average.

Source: OptionsHouse (data)

The top-performing S&P 500 sectors: Materials (+1.6%), Energy (+1.5%, held top spot until Friday’s crude oil decline), and Industrials (+0.7%). The worst-performing sectors were Real Estate (-3.2%), Utilities (-3.2%), and Information Technology (-1.5%).

For the second consecutive week, one of the market’s more notable moves came courtesy of a government action. On Monday the US Supreme Court struck down a federal law prohibiting single-game sports betting, which opened the door for all states to operate legal sports books—which opened the door to some pretty big moves in gaming stocks. Scientific Games (SGMS), which specializes in gaming and lottery technology, closed up 13% on Monday. On the downside, Chinese search engine Baidu (BIDU) tumbled nearly 10% on Friday after the company announced its President/COO (and former Microsoft executive) Qi Lu was stepping down from his position after a year and a half.1

In futures, crude oil prices moved mostly sideways last week (and ended the week with a down day), but still managed to continue their upside push. On Thursday, Brent crude oil (European) hit $80/barrel for the first time since 2014, while US June WTI crude oil futures (CLM8) hit $72.30, a contract high. Soybean futures followed through on the previous week’s tariff-related weakness with more selling, falling to a three-month low, while June Euro FX futures (6EM8) fell to their lowest level since November as the US dollar continued to rally.

This week, FOMC meeting minutes and housing numbers highlight the economic calendar:  

Monday: Chicago Fed National Activity Index

Wednesday: New Home Sales, FOMC minutes

Thursday: FHFA House Price Index, Existing Home Sales

Friday: Durable Goods Orders, Consumer Sentiment

There are just a couple of futures contract expirations this week: June WTI crude oil (CLM8) on Tuesday, and May feeder cattle (FCK8) on Thursday.

The week is fairly light on earnings, but what’s there is heavy on retail stocks:

Monday: Yirendai (YRD)

Tuesday: Advance Auto (AAP), AutoZone (AZO), Cracker Barrel (CBRL), DSW (DSW), Kohl's (KSS), TJX (TJX), Toll Brothers (TOL), HEICO (HEI), Intuit (INTU), Urban Outfitters (URBN), ViaSat (VSAT)

Wednesday: Lowe's (LOW), Ralph Lauren (RL), Target (TGT), Tiffany & Co (TIF), L Brands (LB), NetApp (NTAP), Synopsys (SNPS), Williams-Sonoma (WSM)

Thursday: Best Buy (BBY), Burlington Stores (BURL), Copart (CPRT), Dollar Tree (DLTR), Hormel Foods (HRL), Medtronic (MDT), Sears Holdings (SHLD), Autodesk (ADSK), DXC Technology (DXC), Gap (GPS), Ross Stores (ROST)

Friday: Big Lots (BIG), Foot Locker (FL)

Go to the E*TRADE market calendar (logon required) for an up-to-date schedule, along with a complete list of splits, dividends, IPOs, and other market events.

Russell hustle: The Russell 2000’s divergence from the rest of the market last week was nonetheless in keeping with its historical tendency after breaking out to a new longer-term (e.g., 75- to 85-day) new high and close (see “High time for small caps”). The index has exhibited a pattern of rallying more than usual in the first five to 10 days after such breakouts.

 

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1 TechCrunch. Baidu’s top AI exec is stepping down. 5/18/18.