Stock market standoff
02/26/18

As a rollercoaster February winds down, the US equity market is still wavering between testing its record highs and the February correction low.

But after recovering roughly 50-60% of the January 26–February 9 market correction by February 16, traders may have needed a bit of a breather last week. They settled for mostly sideways price action in most of the market and modest net gains—with the exception (surprise, surprise!) being the tech sector, which was unambiguously in the green. A strong Friday for the broad market turned weekly losses into gains, though, and closed the week on a bullish note.

S&P 500 (SPX), 10/30/17 – 2/23/18

Source: OptionsHouse

Last week’s big news item—the FOMC minutes released on Wednesday—revealed little angst among Fed board members that the economy would overheat (the fear is that rising inflation could prod the Fed to hike rates more than anticipated), but the market nonetheless closed down that day after initially trading higher on the release. Market observers may also be pointing to the other part of the interest rate story—“Treasury yields: Will They or Won’t They Top 3%?”—as weighing on stocks, since the yield on 10-year T-notes hovered between 2.9% and 2.95% for most of the week before pulling back on Friday.

Here’s how the major US indexes fared last week:

Index Comparison

Source: OptionsHouse

Friday’s rally flipped many market sectors from being slightly in the red to slightly in the green for the week. The best-performing S&P 500 sectors were Information Technology (+1.8%), Materials (+1.1%), and Energy (+0.9%)—the latter vaulting into position thanks to a bang-bang rally on Thursday and Friday. The worst-performing sectors last week were Telecom Services (-2.5%), Consumer Staples (-2.4%), and Health Care (-0.3%).

Last week’s earnings kept up the overall trend of a very positive quarterly reporting season, with a notable exception being Walmart (WMT), which took a 10% hit on Tuesday after a surprise earnings miss that helped to push the Dow to a market-leading loss for the day.

In contrast to last week, this week is chock-full of economic releases—heavy on housing numbers, plus GDP and the usual beginning-of-the-month manufacturing data. Also, keep an eye on Thursday’s Personal Income and Outlays release, which will include the Personal Consumption Expenditures (PCE) deflator—the Fed’s preferred inflation gauge.

Monday: New Home Sales

Tuesday: Durable Goods Orders, International Trade in Goods, Retail Inventories (advance), Wholesale Inventories (advance), S&P Corelogic Case-Shiller HPI, FHFA House Price Index, Consumer Confidence

Wednesday: GDP, Chicago PMI, Pending Home Sales Index

Thursday: Personal Income and Outlays, PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending

Friday: Consumer Sentiment

Futures traders have a few expiring contracts to remember this week:

Monday: March natural gas (NGH8), Feb. gold (GCG8), Feb. copper (HGG8)

Wednesday: March gasoline (RBH8), March Fed Funds (FFH8), March sugar (SBH8), Feb. live cattle (LCG8)

This week’s earnings include:

Monday: Boise Cascade (BCC), 2U (TWOU), Howard Hughes (HHC), JBT Corp (JBT), Palo Alto Networks (PANW).

Tuesday: AutoZone (AZO), Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Dycom (DY), Macy's (M), Magellan Health (MGLN), Toll Brothers (TOL).

Wednesday: Analog Devices (ADI), Lowe's (LOW), Overstock.com (OSTK), Salesforce (CRM).

Thursday: Best Buy (BBY), Burlington Stores (BURL), GTT Communications (GTT), Kohl's (KSS), Broadcom (AVGO), Juno Therapeutics (JUNO).

Friday: JD.com (JD).

Go to the E*TRADE market calendar (login required) for a complete list of earnings and other market events.

And speaking of calendars, Thursday is the first day of March, a month that has, on average, become more bullish for equities over the past three decades. During the 60 years from 1928 through 1987, the Dow closed out March with a gain 58% of the time, with an average return of 0.29%. Over the past 30 years, though, the Dow’s average March return was 1.16%, and it has closed higher 67% of the time—numbers that are far better than the Dow’s average performance for Januaries, for example.

 

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