After a breakout week, a “taking a break” week.
Amid a whirlwind of market and geopolitical news—fallout from a contentious G7 meeting, a minor surprise from the Fed, a merger-friendly court ruling, a US-North Korea summit, and yes, more tariffs—US stocks ended last week mixed, with tech and small caps adding modestly to their gains while the broad market was essentially flat.
The Nasdaq 100 (NDX) followed up on the previous week’s record highs with more of the same, establishing new milestones on Tuesday, Wednesday, and Thursday. The small-cap Russell 2000 (RUT) made new records of its own, and ended the week just a few points off its all-time high.
Meanwhile, after treading water for most of the week, the S&P 500 (SPX) traded to a six-day low after Friday’s announced implementation (on July 6) of $34 billion in tariffs on China—which immediately retaliated with new duties on US goods. But the index bounced back late in the session to close in the upper portion of the day’s range and close the week in the green by the smallest of margins.
The other story that seemed to catch the market slightly off guard was Wednesday’s Federal Reserve announcement: As expected, the central bank hiked rates 0.25% to a target range of 1.75-2.00%, but it also stated it was leaning toward a total of four rate increases for 2018—not the previously telegraphed three. The SPX, which had been trading up on the day prior to the announcement, closed in the red. Here’s the index rundown for the week:
Source: OptionsHouse (data)
Sector activity suggested “geopolitical jitters” may have prompted some defensive positioning, especially toward the end of the week. The top S&P 500 sectors for the week were Utilities (+2.6%), Consumer Discretionary (+2.2%) and Consumer Staples (+1.9%). The worst-performing sectors were Energy (-3.1%), Telecom Services (-2%), and Financials (-1.9%).
Mergers—both real and imagined—fueled some of the more newsworthy stock moves of the week. Twenty-First Century Fox’s (FOXA) 7.7% leap on Wednesday was representative of the rallies enjoyed by many perceived takeover stocks (especially media names) after AT&T (T) won its legal battle to buy Time Warner (TWX). Clovis Oncology (CLVS), another long-rumored takeover stock in the biopharmaceutical space, jumped 7.1%.
In the futures arena, China’s retaliatory tariffs on US commodities helped send soybean futures to a one-year low and corn futures back to where they were trading in January. July soybeans (ZSN8) closed the week at 904.25—down 2.6% on Friday and 6.7% for the week.
July WTI crude oil futures (CLN8) climbed slowly higher the first four days of the week before tumbling more than 3% on Friday, putting the market on a path to challenge its early June low of $64.22. June gold futures (GCM8) also took a dive on Friday, dropping more than 2% (to below $1,275/ounce, the lowest price since before last Christmas) and breaking out of the bottom of a four-week consolidation.
The week ahead: If the market is going to attempt to make a move this week, it will have to look for catalysts outside the economic-data realm. The one exception is the homebuilding sector, which may find some inspiration—up or down—in the week’s stacked lineup of housing numbers:
●Monday: Housing Market Index
●Tuesday: Housing Starts
●Wednesday: Current Account, Existing Home Sales
●Thursday: FHFA House Price Index, Leading Indicators
A couple of marquee names are scattered among the week’s sparse lineup of earnings announcements:
●Tuesday: FedEx (FDX), La-Z-Boy (LZB), Oracle (ORCL)
●Wednesday: Actuant (ATU), Winnebago (WGO), Micron (MU)
●Thursday: Carnival (CCL), Commercial Metals (CMC), Darden Restaurants (DRI), Kroger (KR)
●Friday: BlackBerry (BB), CarMax (KMX)
Futures contracts expiring this week include:
●Monday: June Eurodollar (EDM8), Australian dollar (6AM8), British pound (6BM8), U.S. dollar index (DXM8), Euro FX (6EM8), Japanese yen (6JM8), Mexican Peso (6MM8), Swiss Franc (6SM8)
●Tuesday: June Canadian dollar (6CM8)
●Wednesday: July WTI crude oil (CLN8), June S&P 500 VIX (VXM8), June Ultra T-Bond (ZBM8), June T-Bond (TNM8), June 10-Year T-Note (ZNM8).
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.
Bucking historical trends? After a well-above-average May, through Friday the S&P 500 was up 2.7% for June. Since 1960, June has been one of the weaker months of the year for the S&P, tied (with February) for third-worst in terms of the percentage of times it’s closed higher (53.45%), and sporting a slightly negative (-0.2%) average return.