When Wall Street and Washington collide
02/19/19

●S&P 500 closes out third-straight up week, seventh out of the past eight

●Surprise retail sales number on Thursday sets off economic debate

●FOMC minutes due out in holiday-shortened week


 

Although last week’s roller coaster of Washington D.C.-centric news—border-wall and government-shutdown tussles, and ongoing trade negotiations—appeared to whip trader psyches back and forth, the US equity market easily chalked up a third consecutive week of gains.

Agreement on a bipartisan border-security bill had avoided another government shutdown, but President Trump also declared a national emergency in a bid to get additional funds for the construction of more border wall.1

On the US-China trade front, the news sometimes seemed to change on a daily basis—e.g., President Trump stating on Tuesday that he’d consider postponing the March 2 tariff deadline,2 to Thursday’s reports of trade negotiators being “far apart.”3 The tone switched back to positive on Friday, though, and the market closed out the week with a big rally.

S&P 500 (SPX), 12/3/18–2/15/19. S&P 500 (SPX) price chart. Highest high since December 4.

Source: Power E*TRADE


Through it all, the S&P 500 (SPX) suffered only one down day (Thursday), which happened after both the SPX and the Cboe Volatility Index (VIX) closed higher on Wednesday. Friday’s gains brought the SPX to within 2% of its October–December swing highs.

Thursday also included an interesting economic development: The worst drop (-1.2%) in the monthly retail sales number in nine years, the release of which flipped stock index futures from positive to negative in pre-market trading, setting up the day’s overall weakness. Many economists greeted the number with skepticism, though, as it flew in the face of the current data trend.4 (This week’s E-commerce retail sales number may help determine if last week’s number was possibly an anomaly or a data flub.)

Last week ended with all major US indices boasting double-digit gains for the year, while the small-cap Russell 2000 (RUT) solidified its position as the year-to-date heavy hitter:

US stock index performance table for week ending 2/15/19. 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 energy (+4.7%, helped along by rebounding crude oil), industrials (+3.5%), and materials (+3.4%). The worst-performing sectors were utilities (-0.3%), communication services (+1%), and consumer staples (+1.1%).

Highlight reel: On Monday, tobacco supplier Pyxus (PYX) shot up 33% (and added another 12% on Friday) amid news it was moving into the cannabis space. Lattice Semiconductor (LSCC) jumped a total of 41% on Wednesday and Thursday, which were a good couple of days for many chip stocks. On the downside, Sierra Wireless (SWIR) shed -27.68% on Thursday.

Futures watch: On Friday April WTI crude oil (CLJ9) traded above $56/barrel for the first time since November 20.

April gold (GCJ9) turned higher toward the end of the week after pulling back to the top of its early-January consolidation, ending trading on Friday near $1,325/ounce.

Breakout traders are probably watching March 10-year T-note futures (ZNH9), which extended an increasingly tight trading range last week, closing Friday around 122.

Coming this week

In addition to the ongoing trade negotiations, Wednesday’s FOMC minutes release stands out on this week’s economic calendar. But given last week’s retail sales number, traders will likely keep a close eye on the E-Commerce Retail Sales report, too:

Tuesday: Housing Market Index

Wednesday: E-Commerce Retail Sales, FOMC Minutes        

Thursday: ECB Minutes, Durable Goods Orders, Existing Home Sales, Leading Indicators

Friday: Germany GDP    

There are lots of earnings releases stuffed into the next four days, including tech, energy, utilities, and retail:

Tuesday: Advance Auto (AAP), Ecolab (ECL), Medtronic (MDT), Noble Energy (NBL), SAGE Therapeutics (SAGE),  Wal-Mart (WMT), Welbilt (WBT), Westlake Chemical (WLK), American Water Works (AWK), Devon Energy (DVN), Diamondback Energy (FANG), FirstEnergy (FE), Verisk Analytics (VRSK)

Wednesday: Analog Devices (ADI), Cronos Group (CRON), CVS Health (CVS), Owens Corning (OC), Weibo (WB), Agilent (A), Albemarle (ALB), Cheesecake Factory (CAKE), Esperion Therapeutics (ESPR), GoDaddy (GDDY), Netease (NTES), Tenaris (TS), WPX Energy (WPX)

Thursday: Domino's Pizza (DPZ), Newmont Mining (NEM), Wendy's (WEN), Baidu.com (BIDU), BioMarin Pharm (BMRN), Dropbox (DBX), Exact Sciences (EXAS), First Solar (FSLR), Hewlett Packard Enterprise (HPE), Intuit (INTU), iQIYI (IQ), Kraft Heinz (KHC), Roku (ROKU), Scientific Games (SGMS)

Friday: AutoNation (AN), Cabot Oil & Gas (COG), Royal Bank of Canada (RY), Wayfair (W)

Expiring futures contracts include February Canadian dollar (6CG9) today, March WTI crude oil (CLH9) on Wednesday, and CME February Bitcoin (BTCG9) on Friday.

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.

Happy birthday, George and Abe. Since Presidents Day became a fixed holiday (third Monday of February) in 1971, the SPX has shown a slight tendency to close higher the day after the holiday (today), while exhibiting a slightly stronger tendency to close lower the next two days:

Day after Presidents Day: Higher close 52% of the time.

Two days after: Lower close 62.5% of the time.

Three days after: Lower close 58% of the time.

Any trade negotiation news (as well as Wednesday’s FOMC minutes) will likely play a large role in molding this week’s action, but it never hurts to remember the market’s seasonal tendencies.

 

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1Reuters. Trump declares U.S.-Mexico border emergency, Democrats object. 2/15/19.

2CNBC.com. Trump says he may not stick to March deadline on China tariffs. 2/12/19.

3Bloomberg.com. U.S.-China Trade Teams Far Apart on Reform Demands. 2/14/19.

4MarketWatch: The stunning drop in retail sales has Wall Street’s economists skeptical. 2/14/19.