Stocks Bounce as Investors Target New Sectors

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Stocks moved higher last week, potentially breaking a downtrend, as investors found value in new parts of the market.

The S&P 500 rose 2.4 percent between Friday, May 4, and Friday, May 11 — its best best weekly performance in over two months. The index also closed decisively above its 50-day moving average and volatility withered to levels no one’s seen since February’s gut-wrenching selloff.

Sentiment improved on several fronts. Worries about higher interest rates, for example, eased after inflation missed estimates. White House attacks on the pharmaceutical industry weren’t as harsh as feared. The bulls also embraced potential geopolitical risks from sanctions against Iran as a reason to buy oil and gas and stocks.

That lifted the energy sector more almost 4 percent, making it the best major group in the market. Financials and transportation stocks were close behind. While neither of those had much news, both seemed to jump after breaking some key technical patterns. Utilities lagged with a 2 percent drop as investors dumped the safe-haven sector.

S&P 500 (SPX) chart showing potential downtrend breakout

The backdrop for consumers also remained positive with initial jobless claims at multi-decade lows and sentiment still pushing long-term highs. Another bullish headline came out of California, where a law requiring solar panels on new homes lifted solar-energy stocks.

TripAdvisor (TRIP) was the best performer in the S&P 500 last week, up 27 percent after quarterly results trounced estimates. Shipping company Expeditors (EXPD), hospital operator Envision Healthcare (ENVN) and construction firm Jacobs Engineering (JEC) also rallied on strong numbers.

Symantec (SYMC), however, led to the downside with a 30 percent drop on news it may have to restate previous earnings.

This week focuses on housing data and quarterly financials from a handful of blue chips. Home Depot (HD) gets the ball rolling tomorrow, along with retail sales and NAHB’s homebuilder sentiment index.

Wednesday’s big items include housing starts, building permits, oil inventories and earnings from Cisco Systems (CSCO).

Thursday brings initial jobless claims, plus results from Wal-Mart Stores (WMT) and Applied Materials (AMAT). Friday’s quiet.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.