Stocks Climb Wall of Worry for Third Straight Week

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Stocks keep climbing as investors return to the market after a terrible fourth quarter.

The S&P 500 rose 2.5 percent between Friday, January 4, and Friday, January 11. It was the third straight weekly gain and brought the index back to its highest level since mid-December.

Comforting economic news and a hunt for value drove the advance. Several policymakers at the Federal Reserve confirmed their recent shift to easier monetary policy. Jobless claims fell more than expected despite the government shutdown boosting the ranks of workers in need of benefits. Diplomats in the U.S. and China also reported progress on trade talks, while British politicians delayed a harrowing Brexit vote.

Energy, home builders and semiconductors — some of the worst performers in the last six months — were among the best performers last week. Money kept streaming into biotechnology following some high-profile acquisitions. Small-caps remained strong.

Safe havens like gold miners, utilities and consumer staples lagged. That’s a potential sign of risk appetite returning as volatility eases.

Last week’s rally brought the S&P 500 back near the 2600-2620 area where it bounced in late October and early December. Traders may want to be cautious against a potential bearish turn if that old support level becomes resistance. That could be especially important if the current government shutdown continues.

S&P 500 with 50-day moving average and potential resistance zone.

Gridlock in Washington has had little impact on sentiment so far, mostly inconveniencing economists looking for data reports. However, its prolongation could disrupt air travel, the U.S. Securities and Exchange Commission, government contractors and payments like food stamps and tax refunds.

Nektar Therapeutics (NKTR) was the S&P 500’s top gainer last week, surging 21 percent. The drug maker bounced along with other biotechs and benefited from a development agreement with Gilead Sciences (GILD). Mattel (MAT), one of the worst performers in 2018, also rebounded 18 percent from its lowest price in almost two decades.

PG&E Corp. (PCG) was the index’s worst performer, cratering 28 percent on worries it may face bankruptcy because of California wildfires. Macy’s (M) followed with a 14 percent drop on weak holiday sales.

This week brings the start of quarterly earnings. Citigroup (C) gets the ball rolling today.

JPMorgan Chase (JPM), UnitedHealth (UNH), Delta Air Lines (DAL) and Wells Fargo (WFC) follow tomorrow morning. United Continental (UAL) is due that afternoon.

Wednesday features Bank of America (BAC) and Goldman Sachs (GS). Retail sales are also scheduled but may be delayed by the government shutdown.

Morgan Stanley (MS) is slated for the next morning, along with housing starts, building permits and jobless claims. Netflix (NFLX) reports Thursday afternoon.

The week concludes with consumer sentiment on Friday morning.

Don’t forget next weekend is a long weekend because of Martin Luther King Jr. day on January 21.

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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.