Traders cheer as banks take on tech
07/05/17

Finally, some excitement in the market.

The S&P 500 fell 0.6 percent between Friday, June 23, and Friday, June 30. It was the biggest weekly drop since mid-April, and came as the index churns near record highs. Some strategists are even calling for a pullback.

Traders shrugged. They know rotation when they see it. Financials, after all, were the market’s black sheep between March and late May as technology stocks soared to new highs. The tide began turning earlier in June, and became a tidal wave last week. All told, financials ended the period up 3.6 percent while technology slid 2.7 percent.

Analysts saw two catalysts for the rally in banks. First, Federal Reserve Chair Janet Yellen indicated she’ll continue to push interest rates higher – good news if you lend money.1 Second, regulators declared the industry has more than enough capital to fork over billions to their stockholders.2 Subprime crisis, we hardly knew thee.

There were some other headlines like weak durable-goods orders, strong consumer confidence, and a positive revision to first-quarter gross domestic product. But, no one seemed to care much.

S&P 500, 6-month chart

Source: OptionsHouse by E*TRADE

Investors were more interested in earnings, especially better-than-expected ones. Acuity Brands (NYSE: AYI), for instance, beat on the top line and beat on the bottom lines.3 Ditto for sneaker giant Nike (NYSE: NKE).4 AYI closed the week up 15 percent, making it the best-performing stock in the S&P 500. NKE took the runner-up spot with a 12 percent gain.

Metal-working company Arconic (NYSE: ARNC) was a big decliner, falling 11 percent after its products were linked to London’s deadly Grenfell Tower fire.5 Chip maker Advanced Micro Devices (NASDAQ: AMD) had a similar drop thanks to the broader bloodletting in tech. Most of the other big decliners, including Qorvo (NASDAQ: QRVO) and Skyworks Solutions (NASDAQ: SWKS), were also in the semiconductor space.

This week is shortened by Independence Day, but there are some noteworthy events. The Institute for Supply Management’s manufacturing index was due on Monday. Today brings factory orders and minutes from the Fed’s last meeting. Tomorrow’s big items are ADP’s private-sector payrolls report, initial jobless claims, ISM’s services index, and oil inventories. Non-farm payrolls hit Friday morning, followed by the G-20 meeting in Hamburg into the weekend.

 

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1. Bloomberg: Yellen Keeps Fed on Track for Rate Hikes. 6/27/17.

2. CNBC: Bank stocks jump after banks get Fed's blessing to unleash big buybacks, dividends. 6/29/17.

3. Marketwatch: Acuity Brands shares jump 11% after earnings beat. 6/29/17.

4. Marketwatch: Nike shares climb after fourth-quarter earnings beat. 6/29/17.

5. Reuters: Arconic ends sales of panels used at Grenfell Tower for high-rises. 6/26/17.