Last Week Shows Records Were Made to Be Broken

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As the saying goes: Records were made to be broken.

Just take the market last week. The S&P 500’s decade-long bull run surpassed the lifespan of its previous upward journey in the 1990s. Another record fell on Tuesday, when the Russell 2000 Index hit a new all-time high. The S&P 500 and Nasdaq Composite followed by breaking into uncharted territory on Friday.

All told, the S&P 500 advanced 0.86 percent between Friday, August 17, and Friday, August 24. It was the index’s seventh positive week in the last eight. There was also a dramatic shift between sector performance.

For example, energy went from being the weakest major group in the last month to the top performer. Global stocks and emerging markets also made sharp swings from the red to green columns.

On the other hand, former safe havens like utilities, consumer staples and real-estate investment trusts turned lower. Did you know they actually outperformed the market over the preceding month?

The relative strength of smaller companies and newer companies also stood out. As mentioned, the Russell 2000 small-cap index was the first benchmark to break out. Meanwhile the Nasdaq-100, home of some of the biggest companies, remained below its old highs unlike the broader Nasdaq Composite.

This behavior seems to reflect risk appetite because smaller companies are often more sensitive to changes in the business cycle and are viewed as potential takeover targets.

The economic data mostly remained strong. Business investment showed continued traction and initial jobless claims kept hugging multi-decade lows. Home sales disappointed again, but the culprit is still a lack of inventory. At what point does that translate into more construction and thus more economic growth?

S&P 500 chart

Federal Reserve Chair Jerome Powell also fended off criticism from President Trump and said he’ll keep nudging rates higher. It seems like that was priced in because bond yields and the U.S. dollar declined.

Advanced Micro Devices (AMD) was the biggest gainer in the S&P 500 last week, up 21 percent. The chip maker continues to benefit from troubles at larger rival Intel (INTC). The one-time hunter has become the hunted.

Autodesk (ADSK) was No. 2 with a 19 percent gain. It joined Veeva Systems (VEEV) and Splunk (SPLK) to report blowout results from the ongoing explosion of cloud computing. Others that have run on strong earnings include Salesforce.com (CRM), Atlassian (TEAM), Paycom Software (PAYC) and ZScaler (ZS).

We should mention Target (TGT) because its results showed both a rebound in consumer spending and success in the company’s turnaround strategy. Rival big-box merchant Wal-Mart Stores (WMT) spun a similar tale the previous week. Will it be happy holiday season?

Not all retailers were so lucky. Just look at Victoria’s Secret parent, L Brands (LB). It cratered 15 percent as traffic continued to dwindle. Food company J.M. Smucker (SJM) was second-worst as sales continued to disappoint.

This week is likely to be quiet because it leads into the long Labor Day weekend. However, there are still some noteworthy events on the calendar.

Tomorrow brings consumer confidence, along with earnings from Best Buy (BBY) and Hewlett-Packard Enterprises (HPE).

Wednesday features the Commerce Department’s revised numbers on second-quarter gross domestic product and crude-oil inventories. CRM also reports numbers in the afternoon.

Thursday’s items include initial jobless claims, personal income and spending and earnings from Lululemon Athletica (LULU) and Nutanix (NTNX).

The following week, after Labor Day, will focus on big monthly reports like non-farm payrolls.

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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.