Stocks Begin Year in the Green as Calm Returns

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Stocks began 2019 on a bullish foot amid a flurry of dramatic headlines.

The S&P 500 rose 1.9 percent in the holiday-shortened week between Friday, December 28, and Friday, January 4. The index fluctuated just 94 points between its high and low, the smallest swing in two months. Meanwhile, Cboe’s Volatility Index ($VIX) had its biggest drop since February.

The big story was huge job gains, especially in the private sector and factories. Federal Reserve officials also reaffirmed that they’re in no hurry to raise interest rates. On top of that, a historic merger drew buyers to biotechnology.

But there was bad news as well. Apple (AAPL) cut its guidance again as iPhone shipments kept softening. Airlines were hit by a big profit warning. Tesla (TSLA) struggled with unsold vehicles. Manufacturing indexes weakened in both China and the U.S. The government shutdown continued with little sign of a deal between President Trump and Democrats in the House of Representatives.

Celgene (CELG) was the S&P 500’s top-performer on the week, ripping 36 percent after accepting a $74 billion takeover by Bristol-Myers Squibb (BMY). News of the deal, the biggest pharmaceutical combination ever, also lifted peer Incyte (INCY) 16 percent.

Netflix (NFLX) rose a similar amount on a bullish Goldman Sachs recommendation. It’s one of the few companies in the Nasdaq-100 back above its 50-day moving average.

Align Technology (ALGN) was the worst performer in the S&P 500, down 10 percent last week. The former high-flying orthodontic stock remains under pressure after a terrible quarterly report in October. BMY and Broadcom (AVGO) also dropped about 8 percent.

Aside from biotechnology, energy was the best-performing major group last week as crude oil rebounded from long-term lows. Brazilian stocks also ripped higher as a pro-business administration took office.

S&P 500 with 50-day moving average and one-day changes.
S&P 500 with 50-day moving average and one-day changes.

So where do we stand on the broader market following these recent swings? The last two weeks have seen two of the S&P 500’s biggest single-day gains in years (December 26 and January 4), although the index is still deep in the red over the last month. Will investors view the current level as a value, given the positive economy? Or will they wait for more clarity on the government shutdown and tariffs on China?

Aside from those questions, health care will be in focus with J.P. Morgan’s important industry conference running from Monday through Thursday. Other events today include the Institute for Supply Management’s service-sector index and factory orders.

Tomorrow morning may feature headlines from Beijing as U.S. and Chinese officials conclude two days of trade talks.

Wednesday brings crude-oil inventories and minutes from the last Fed meeting. Initial jobless claims are due Thursday, followed the next session by consumer-price inflation.

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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.