So Much for a Trade War Killing Stocks

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The economy is strong, earnings are near and a trade war might be priced in. That kept stocks rising last week.

The S&P 500 climbed 1.5 percent in the holiday-abbreviated week between June 29 and July 4. More than four-fifths of of the companies in the benchmark advanced, along with almost every major industry. The index also seemed to bounce at some potentially important technical levels. (See chart below.)

Washington and Beijing kept clashing openly over trade and slapped tariffs of each other. But that risk’s been known for months. What might have been less appreciated is just how strong the economy has gotten recently.

Data points like non-farm payrolls not only beat estimates but showed formerly discouraged workers returning to the labor force in huge numbers. That helped prevent a spiral of wage increases that could ultimately squeeze company profits.

Speaking of profits, did you know that Factset estimates second-quarter earnings will increase 20 percent? That would be the second-biggest gain this decade. (Stay tuned for those results next week.)

Industry is also surging. The Institute for Supply Management’s manufacturing index beat estimates once again, while factory jobs had their biggest gain of the year.

Healthcare and biotechnology stocks were the best major group last week as investors returned to a neglected corner of the market. Utilities were the second best sector as interest rates fell — somewhat baffling when you consider the strong economic data.

Technology also had a strong week, led by software makers and social-media giant Facebook (FB).

S&P 500 index, with moving averages and potential trend line.

Energy lagged as President Donald Trump jawboned crude oil lower. Emerging markets continued to struggle as trade worries hurt sentiment.

Biogen (BIIB) was the single biggest gainer in the S&P 500 last week, surging 23 percent on positive trial results for a prospective Alzheimer’s drug. Lighting maker Acuity Brands (AYI) followed with an 11 percent gain on strong earnings.

Wynn Resorts (WYNN), on the other hand, dropped 6 percent as gambling activity slowed in its core market of Macau. Nike (NKE) was the second-weakest in the S&P 500, retreating 4 percent after a huge earnings beat drove the sneaker giant to a new high the previous week.

The forward calendar is quiet as traders count down to earnings. The first noteworthy item will be PepsiCo’s (PEP) results tomorrow morning.

Wednesday brings the producer-price index and crude-oil inventories, followed by consumer prices and initial jobless claims the next morning.

Second-quarter results start flowing in a big way on Friday as Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC) report. Consumer sentiment is also due.

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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.