Tech recaptures pole position
05/07/18

Is the guard changing yet again?

Tech led US equities when the bull was strongest, but it’s been a while since it’s really paced the rest of the market. Last week, though, technology shares led a big Friday rally that catapulted the Nasdaq 100 (NDX) solidly into the green for the week, and dragged the rest of the market along for the ride.

Intraday declines alternated with rallies all week in the S&P 500 (SPX): The index closed lower (and below the open) on Monday and Wednesday, closed higher (and above the open) on Tuesday and Friday, and closed lower but above its open on Thursday, as a flood of economic data and earnings fed into the market.

S&P 500 (SPX), 3/29/18 – 5/4/18 S&P 500 daily chart.

Source: OptionsHouse

The hit-and-miss nature of the data didn't do much to clarify the market picture: Pending home sales for March came in weak on Monday, while on Tuesday construction spending posted a surprise -1.7 decline, and the ISM Manufacturing Index (ISM) slightly missed its estimate (57.3 vs. 58.6). With inflation right around the Federal Reserve’s 2% target rate, the central bank held interest rates steady on Wednesday (as expected), and did nothing to suggest it would deviate from its longer-term game plan of gradual increases. On Thursday the ISM services index was weaker than expected, but factory orders were stronger, and the trade deficit narrowed. Friday’s jobs report itself was a mixed bag: New jobs were below estimates (164k vs. 191k), but the previous month’s number was revised higher, and the unemployment rate downticked to 3.9%.

Friday’s rally, which was especially evident in the Nasdaq 100 (NDX) and the Dow Jones Industrial Average (DJIA), occurred amid reports that Warren Buffet had snapped up 75 million shares of Apple (AAPL) stock in the first quarter. Apple surprised many naysayers with a strong earnings report on Tuesday, which was followed by a 4.4% rally on Wednesday and a 3.9% gain—and new all-time high—on Friday. The NDX led US indexes, followed by the Russell 2000 (RUT):

US Stock Index Comparison table for week ending May 4, 2018

The Friday rally also helped push tech to the top of the S&P sector rankings for the week. The best performers: Information Technology (+3.2%), Real Estate (+1%), and Materials (+0.1%). The worst-performing sectors were Telecom Services (-4.8%), Health Care (-3%), and Consumer Staples (-2%).

Overall, earnings continued to surprise to the upside—including Tesla’s (TSLA). Like Apple, the electric carmaker caught some critics off guard with its better-than-expected numbers on Wednesday. After falling 8.6% intraday on Thursday, the stock rebounded to close down only 5.5%, and tacked on a 3.4% gain on Friday.

In futures, June crude oil (CLM8) pushed above the top of its recent trading range at the end of the week (trading just 3 cents shy of $70/barrel), June gold (GCM8) fell to its lowest level since December, and September corn (CU8) broke out to new highs. June dollar index (DXM8) futures continued a two-week run by rallying to their highest level since December.

Following last week’s top-of-the-month data barrage, this week’s economic calendar is fairly light, with inflation numbers coming in on Wednesday and Thursday :

Monday: Consumer Credit

Tuesday: NFIB Small Business Optimism Index, JOLTS

Wednesday: Producer Price Index (PPI), Wholesale Trade

Thursday: Chain Store Sales, Consumer Price Index (CPI)

Friday: Import and Export Prices, Consumer Sentiment

And a reminder for cotton traders—the May futures contract (CTK8) expires on Tuesday.

The earnings calendar also cools a bit (but not too much). Here’s a sample of the week’s offerings:

Monday: Cognizant Tech (CTSH), Sempra Energy (SRE), Sysco (SYY), Tyson Foods (TSN), Willis Towers Watson (WLTW), j2 Global (JCOM), Trex (TREX), Zillow (ZG)

Tuesday: AES (AES), Autohome (ATHM), JD.com (JD), LGI Homes (LGIH), Microchip (MCHP),

Electronic Arts (EA), GoDaddy (GDDY), Marriott (MAR), Match Group (MTCH), Walt Disney (DIS), Wendy's (WEN)

Wednesday: Anheuser-Busch InBev (BUD), EPAM Systems (EPAM), Groupon (GRPN), Toyota Motor (TM), 21st Century Fox (FOXA), Albemarle (ALB), Neenah (NP), SolarEdge Technologies (SEDG), Upland Software (UPLD)

Thursday: Big Lots (BIG), Dillard's (DDS), Duke Energy (DUK), Magna (MGA), MAXIMUS (MMS), Air Lease (AL), CRISPR Therapeutics (CRSP), NVIDIA (NVDA), Symantec (SYMC),

Friday: Thomson Reuters (TRI)

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

Keeping tabs on the S&P range: Last Thursday the S&P 500 penetrated the previous week’s low on an intraday basis but rallied to close well above it (creating a weekly bar very similar to the previous week’s). And the S&P 500’s 1.3% gain on Friday was its largest closing gain since April 10, and its largest open-to-close rally since April 4.

 

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