To buy or not to buy
02/11/19

●Market stumbled late last week amid trade-war news

●Earnings continued to surprise mostly to the upside

●Friday is options expiration


 

You know the market’s been in rally mode when just one or two down days can seemingly blindside analysts and commentators, leading some to question their faith in a continued stock rebound.

For now, let’s just call last week’s Thursday-Friday downturn the third pullback since late December. The future will bring what it will bring.

S&P 500 (SPX), 11/28/18–2/8/19. S&P 500 (SPX) price chart. Pullback number 3.

Source: Power E*TRADE


Not surprisingly, US stocks turned lower amid the latest flareup of tariff-itis. The market was coming off a five-day upswing when White House economic advisor Larry Kudlow asserted there was “a pretty sizable distance to go” in terms of resolving US-China trade issues,1 and President Trump said he was unlikely to meet with Chinese President Xi Jinping before the March 1 trade negotiation deadline.2

Welcome back worries of temporarily mothballed tariffs kicking in, and the resulting nail-biting over global economic growth. But as mentioned in “Fade the trade?” there will be plenty of news yet to come on this front, and the stock market has often reversed its initial reactions to such developments.

As of Friday morning, the SPX had fallen as much as 2% from its February 5 close—larger than its maximum decline during the late-January pullback, but smaller than its early-January downturn. But worth noting: The market rallied well off its low on Thursday and again on Friday, when the SPX rallied into positive territory by the close.

Friday's late rally also pushed all the major indexes into the black for the week. Here are the final numbers:

US stock index performance table for week ending 2/8/19. S&P 500 (SPX), Nasdaq 100 (NDX), Russell 2000 (RUT), Dow Jones Industrial Average (DJIA).

Source: Power E*TRADE


Sector action: The top-performing S&P 500 sectors were utilities (+1.9%), information technology (+1.7%), and industrials (+1.5%). The worst-performing sectors were energy (-3.4%), materials (-1.63%), and financials (-1.61%).

Highlight reel: Biopharma made some noise last week. MacroGenics (MGNX) had the move on the week, nearly tripling to $32.42 in early trading Wednesday after releasing positive trial results for its breast cancer drug,3 but pulling back to close up 130% on the day. On the downside, Solid Biosciences (SLDB) tumbled -68% on Thursday in the wake of disappointing results for its gene-therapy muscular dystrophy treatment,4 falling all the way from $22.34 to $7.19.

Futures watch: April gold (GCJ9) reversed a pullback with an intraday rebound on Thursday and upside follow-through on Friday, ending the week around $1318/ounce. After starting out the week with an intraday push to its highest level since November (approaching $56/barrel), March WTI crude futures (CLH9) slumped most of last week, closing Friday around $52.75.

A pullback in March British pound futures (6BH9) appeared to reach at least a temporary inflection point last Thursday, as the pound rallied off a 13-day low to close up on the day, breaking a five-day losing streak. The pound closed slightly lower on Friday (around 1.2960), but well above Thursday’s low. Get ready for Thursday’s (latest) Brexit vote.

Coming this week

Inflation data moves to center stage this week on the economic calendar, with retail sales and industrial production numbers rounding out a busy Friday, which is also February options expiration:

Tuesday: NFIB Small Business Optimism Index, JOLTS

Wednesday: Consumer Price Index (CPI), Atlanta Fed Business Inflation Expectations       

Thursday: UK Parliament vote on revised Brexit deal, Producer Price Index (PPI), Business Inventories

Friday: Retail Sales, Import and Export Prices, Industrial Production, Consumer Sentiment, options expiration.

We’re deep into earnings season, but don’t get complacent: This week’s earnings will include some big tech names (including Chinese tech), iconic American consumer brands, Canadian cannabis stocks, and a couple of waste-management stocks that shouldn’t be overlooked:          

Monday: Aurora Cannabis (ACB), Diamond Offshore (DO), Dun & Bradstreet (DNB), FMC Corp (FMC), Omega Health (OHI), RingCentral (RNG)

Tuesday: Shopify (SHOP), Under Armour (UAA), US Foods (USFD), Activision Blizzard (ATVI), Akamai Tech (AKAM), Exelixis (EXEL), Fossil (FOSL), iQIYI (IQ), Occidental Petro (OXY), TripAdvisor (TRIP), Twilio (TWLO)

Wednesday: Arris (ARRS), Canopy Growth (CGC), Cronos Group (CRON), Gaming and Leisure Properties (GLPI), Global Payments (GPN), Hilton (HLT), Interpublic (IPG), Natus Medical (BABY), Teva Pharma (TEVA), Weibo (WB), American Intl (AIG), Cisco Systems (CSCO), HCP (HCP), Marathon Oil (MRO), MGM Resorts (MGM), NetApp (NTAP), Tilray (TLRY), Waste Connections (WCN)

Thursday: Brookfield Asset Management (BAM), CME Group (CME), Coca-Cola (KO), EPAM Systems (EPAM), Incyte (INCY), Quest Diagnostics (DGX), USG (USG), Vulcan Materials (VMC), Waste Management (WM), Applied Materials (AMAT), Arista Networks (ANET), Baidu.com (BIDU), BioTelemetry (BEAT), Cognex (CGNX), LogMeIn (LOGM), NVIDIA (NVDA), XPO Logistics (XPO)

Friday: American Axle (AXL), Dana Inc. (DAN), Deere (DE), Enbridge (ENB), Moody's (MCO), Newell Brands (NWL), PepsiCo (PEP), Yandex (YNDX), Kraft Heinz (KHC)

Go to the E*TRADE market calendar (logon required) for an up-to-date earnings schedule, along with a complete list of splits, dividends, IPOs, economic reports, and other market events. The Active Trader Commentary also lists earnings announcements and economic report times every day.

How hot is too hot? One of the more logical arguments for why the market could decline more is its continued strength. Before the market turned down last Thursday, for five consecutive days the SPX’s  year-to-date (YTD) return had been higher than the comparable YTD returns of 96% of all years since 1950—that means only three other years had larger gains.

Thursday’s sell-off dropped the SPX’s YTD return to the 91% level, while Friday's intraday rebound bumped it back up to 93%. The SPX’s past two pullbacks or consolidations didn't conclude until the index’s YTD return fell below the 90% level for at least a day.

 

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1 Bloomberg.com. Trump Sees No Xi Meeting by Tariff Deadline, Stoking Trade Worry. 2/7/19.

2 CNBC.com. Dow drops more than 300 points as sources tell CNBC Trump-Xi meeting unlikely before deadline. 2/7/19.

3 TheStreet.com. MacroGenics Stock Soars on Positive Breast Cancer Trial Results. 2/6/19.

4 Investor’s Business Daily. Why This Biotech Stock Cratered 68% On Its Gene Therapy Study. 2/7/19.