Life on the tariff-go-round
09/10/18

●Tech led last week's market downturn

●Only second down week of the past 10

●Payrolls topped estimates on Friday, but tariff talk interrupted rally


 

Well, give credit where credit is due.

In a week weighed down by new tariff threats, the ongoing emerging-markets mess, and a tech retrenchment, it was the Dow Jones Industrial Average (DJIA)—the only US stock barometer that hasn’t pushed to a new all-time high in the past couple of months—that best weathered the storm.

In only the second down week in the past 10 for the broad market, the S&P 500 (SPX) took a moderate hit and ended the week on its sixth-straight day with a lower low and lower high:

S&P 500 (SPX), 1/10/18–9/7/18. S&P 500 (SPX) daily price chart. Pullback.

Source: OptionsHouse

The market attempted to turn things around at the end of the week, but Friday's early rally (following an estimate-topping jobs report) fizzled amid renewed White House threats of tariffs on virtually all Chinese imports.1

And despite remaining ahead of the broad market by a country mile for the year, the Nasdaq 100 (NDX) was still the week’s biggest loser. Here’s the scorecard:

US stock index performance table for week ending 9/7/18

Source: OptionsHouse (data)

Sector action: Not surprisingly, the market adopted a more defensive posture. The top-performing S&P 500 sectors were consumer staples (+1%), utilities (+1%, the previous week’s biggest loser), and industrials (+0.6%). The worst-performing sectors were information technology (-2.9%, the previous week’s biggest winner), energy (-2.3%), and real estate (-1.2%).

Highlight reel: Worries about semiconductor demand were one of the millstones around tech’s neck last week,2 and chipmakers indeed took their lumps—Micron Technology shed more than 4% on Wednesday and nearly 10% on Thursday, before rebounding on Friday. Amazon (AMZN) made a similar, but smaller, pullback after briefly reaching a $1 trillion market cap on Tuesday.

But Thursday, ironically, also featured a couple of huge up moves, with Arrowhead Pharmaceuticals (ARWR) jumping 37.52% and Cloudera (CLDR) 24%.

And although it wasn’t anywhere near the biggest move of the week, Nike’s (NKE) 3.2% Tuesday drop amid the release of its new ad campaign was likely the most talked about. NKE shares rebounded the next two days, though, bucking the market’s downtrend, as sales reportedly increased after the ad release.3

Futures action: October WTI crude oil futures (CLV8) fell an additional 3% after tagging resistance above $71/barrel and closing lower on Tuesday. The contract closed out the week below $68.

December gold futures (GCZ8) consolidated most of the week after a downturn on Tuesday, closing Friday a little above $1,200/ounce.

The week ahead. Before Friday’s full slate of sales, trade, and sentiment numbers, traders will be treated to the latest inflation data this week:

Monday: Consumer Credit      

Tuesday: NFIB Small Business Optimism Index, JOLTS, Wholesale Trade   

Wednesday: Producer Price Index (PPI), Atlanta Fed Business Inflation Expectations, Beige Book

Thursday: Consumer Price Index (CPI)

Friday: Retail Sales, Import and Export Prices, Industrial Production, Business Inventories, Consumer Sentiment

And a few earnings to look for:                               

Monday: Argan (AGX), Casey's General (CASY)

Tuesday: USA Tech (USAT)     

Wednesday: Oxford Industries (OXM), Pivotal Software (PVTL), Tailored Brands (TLRD)

Thursday: Kroger (KR), Adobe Systems (ADBE), Oracle (ORCL)

Friday: Dave & Busters (PLAY)

Expiring futures contracts include:

Thursday: September cocoa (CCU8)

Friday: September grains, including soybeans (ZSU8), corn (ZCU8), and wheat (ZWU8).

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.

Executing the game plan. The SPX’s retreat last week fit the rally-and-pullback pattern described in “The reality of new market highs.” Also, the SPX and Russell 2000 (RUT) both reversed to the upside on Friday after testing previous swing highs/breakout levels, while the NDX retreated to its longer-term uptrend line.

Finally, the SPX’s streak of six consecutive lower low/lower highs is fairly rare, having been matched or exceeded only 21 other times since 1980 (most recently in 2012). For reference, after five days the index was higher in 15 of the cases.

 

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1 Bloomberg.com. Trump Threatens Tariffs on Another $267 Billion of Chinese Imports. 9/7/18.

2 CNBC.com. Nasdaq falls for a third day as Amazon, Apple and chip stocks get hit. 9/6/18.

3 MarketWatch. Nike’s online sales jumped 31% after company unveiled Kaepernick campaign. 9/7/18.