Stocks follow through
09/04/18

●With tech leading the way, US stock indexes push to new record highs

●Second estimate of Q2 GDP tops expectations

●Jobs, manufacturing numbers on tap this week


 

Now can the Dow get with the program?

That may be the question on the lips of many traders and investors after the S&P 500 (SPX) padded its August 24 record close with a few new highs last week, as did the Nasdaq 100 (NDX) and Russell 2000 (RUT).

And even though the Dow Jones Industrial Average (DJIA) is still around 2.5% from its all-time high, it managed to trade above 26,000 for the first time since February 2, although it ended the week slightly below that threshold.

S&P 500 (SPX), 4/20/18 – 8/31/18. S&P 500 (SPX) daily price chart. Mid-week peak.

Source: OptionsHouse

Despite some mild selling leading into the holiday weekend, the SPX notched its third-straight up week (and eighth out of the past 10), thanks mostly to solid rallies at the beginning and middle of the week. The market got off on a good foot on Monday, breaking out of a brief consolidation amid news of a potential US-Mexico trade deal, and built on that momentum with another up day on Wednesday, which followed that morning’s better-than-expected Q2 GDP number (4.2% vs. 4%1).

The week also marked tech’s return to market-leader status—the NDX is now up nearly 20% on the year. Here’s the index breakdown for last week:

Index comparison table for week ending August 31, 2018. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: OptionsHouse (data)

Sector action: The top-performing S&P 500 sectors were information technology (+2%), consumer discretionary (+1.8%), and health care (+1%). The worst-performing sectors were telecom services (-1.7%), utilities (-0.6%), and consumer staples (-0.5%).

Highlight reel: DSW (DSW) screamed more than 20% higher on Wednesday after blowing past its earnings estimates.

Dick’s Sporting Goods (DKS) initially tumbled more than 9% on Wednesday after releasing earnings, but it staged a strong intraday rally to close down only 2.2%, and then followed up with a 1.7% gain on Thursday and a 4.1% intraday jump on Friday to climb back to its pre-earnings level.

Medical marijuana stocks continued to be incredibly active—and volatile—in the wake of liquor company Constellation Brands’ (STZ) mid-August decision to up its investment in Canadian marijuana firm Canopy Growth (CGC). One example: Cronos Group’s (CRON) daily moves last week were +21%, -8%, +15%, -28%, +8%, with average volume in the tens of millions of shares. Reports have circulated that marijuana stocks are potential takeover targets for traditional companies (with emphasis on liquor businesses) seeking toeholds in the legalized cannabis market.2

Futures action: Soybeans continued to be the headline casualty of the US-China tariff wars. After making a lower low every day for the past two weeks, the November futures contract (ZSX8) tested its mid-July lows around $8.30/bushel on Friday before rebounding intraday.

On Thursday, October WTI crude oil futures (CLV8) pushed above $70/barrel for the first time since July.

December gold futures (GCZ8) consolidated for most of the week between $1,205 and $1,220 after making a two-week closing high on Monday.

The week ahead. Even though it’s a short week, it’s the first one of a new month, which means traders need to prepare for the release of key manufacturing numbers and the jobs report:

Monday: US holiday (Labor Day)

Tuesday: PMI Manufacturing Index, ISM Manufacturing Index, Construction Spending

Wednesday: Motor Vehicle Sales, International Trade

Thursday: ADP Employment Report, Productivity and Costs, PMI Services Index, Factory Orders, ISM Non-Manufacturing Index

Friday: Employment Situation (Jobs report)

This week’s light earnings calendar features a few big tech names:

Tuesday: Casey's General (CASY), Coupa Software (COUP), RH (RH), Workday (WDAY)

Wednesday: HD Supply Holdings (HDS), Ctrip (CTRP), DocuSign (DOCU), Guidewire Software (GWRE), MongoDB (MDB), Ollie's Bargain Outlet (OLLI)

Thursday: Broadcom (AVGO), Five Below (FIVE), Marvell (MRVL), Palo Alto Networks (PANW)

Friday: Genesco (GCO)

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

Back to school blues? Exiting the S&P 500’s strongest August (+3.03%) since 2014 and its fourth-strongest of the past 20 years, we enter the always interesting late-summer/early-fall zone, home to many of the market’s more, ahem, notable moves.

And contrary to popular belief, October—although host to some of the biggest one-day stock-market drops of all time—isn’t the US market’s historically worst month. That honor goes to September, which has produced a negative return in the SPX 31 years of the past 57 (and four of the past five, but only 10 of the past 20), usually because of weakness in the latter half of the month.3 (On the other hand, the average return for the 26 up-closing Septembers was 3.2%.)

Regardless, this historical tendency, if and when it emerges, may simply lead experienced traders to be more selective about long-side stock trades and keep an eye peeled for short-side opportunities.

Look for more analysis of the market’s September and October historical patterns in this space this week.

 

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1 Briefing.com. GDP–Advanced. 8/29/18.

2 MarketWatch. Pot stocks rampage amid expectations of more big deals with traditional companies. 8/26/18.

3 Supporting document available upon request.