Cyclicals Lead as Stocks Climb Wall of Worry

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Stocks kept climbing last week, with higher-risk sectors leading the charge.

The S&P 500 rose 1.5 percent between Friday, July 6, and Friday, July 13, to close at its highest level since February 1. The Nasdaq-100 surged even more into new record territory.

Companies associated with growth and risk appetite performed best. Industrials were the strongest major sector, followed by technology and consumer-discretionary names. Safe-havens like utilities and real-estate investment trusts, on the other hand, got sold.

As the adage states, “bull markets climb a wall of worry.” That seemed to be the story last week, with investors anxious about tariffs grudgingly putting money to work as worst-case scenarios failed to pan out.

S&P 500 showing levels and 50-day moving average

For instance, some pundits concluded China ran out of bullets in its trade war against the U.S. after ignoring fresh threats from President Donald Trump on Tuesday. Beijing may have even backtracked by allowing foreign companies like BASF and Tesla Motors (TSLA) to build factories without domestic partners.

Washington lifted restrictions on Chinese telecom ZTE the next day. Coincidence, or signs of a thaw?

Meanwhile, benign economic news kept flowing. Jobless claims fell more than expected, inflation remained tame, rail traffic accelerated and housing showed signs of a thaw. A surprise headline even suggested the forgotten PC market is coming back to life.

In another interesting factoid, the S&P 500’s two biggest movers last week both resulted from the same story: Broadcom (AVGO) agreeing to buy CA Technology (CA). CA soared 20 percent on the news, but AVGO cratered 18 percent after analysts said there was no reason for a chip maker to buy an old-school software firm.

Fastenal (FAST) was the second-biggest gainer, ripping 15 percent on strong results. L Brands (LB) was the second-biggest loser, crumbing 14 percent as business slowed at its flagship Victoria’s Secret chain.

This week focuses on the corporate earnings as second-quarter results begin to flow in significant numbers. Bank of America (BAC) kicks things off this morning and is followed after the closing bell by Netflix (NFLX). Retail sales are also due.

Tomorrow brings UnitedHealth (UNH), Johnson & Johnson (JNJ), UAL (UAL) and CSX (CSX). Federal Reserve Chair Jerome Powell also begins two days of testimony on Capitol Hill.

Wednesday features housing starts, building permits, crude-oil inventoies and the Fed’s Beige Book report of economic conditions. Morgan Stanley (MS), American Express (AXP), eBay (EBAY), International Business Machines (IBM) and U.S. Bancorp (USB) are also on tap.

Thursday’s big names include Microsoft (MSFT) and Union Pacific (UNP). Initial jobless claims are the main economic item.

Honeywell (HON) and General Electric (GE) are the big names to wrap things up Friday morning.

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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.