Stocks Keep Climbing as Negativity Lifts

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Stocks keep rising as the fourth quarter’s gloom continues to lift.

The S&P 500 rose 1.6 percent between Friday, January 25, and Friday, February 1. It was the fifth gain in the last six weeks, with every major sector and index moving higher.

Good economic news and decent earnings powered the move. Job growth accelerated despite the recent government shutdown. The Federal Reserve moved further away from a hawkish rate-hiking stance. Industrial activity also staged a surprise rebound as new orders surged.

The reaction to corporate results was especially interesting. You might remember that in October, investors refused to believe strong earnings and punished companies for the slightest blemish. This time around has proven the opposite as Wall Street looks past bad news. The glass, previously half empty, is now half full.

Charter Communications (CHTR) is a case in point. The cable-television company beat on revenue and added more Internet subscribers than expected. Buyers focused on those positives despite profit missing estimates. CHTR ripped 17 percent, the biggest gain in the S&P 500.

Xerox (XRX) and Symantec (SYMC) followed with gains of 16 percent and 12 percent, respectively. XRX continued to show signs of adapting to a post-paper world, while SYMC had its second straight bullish quarter.

Energy Leads

Even though technology companies topped the rankings last week, energy was the strongest sector overall as crude oil (@CL) pushed to its highest level since mid-November. Did you know that last month OPEC cut production by the most in two years? How about those sanctions on Venezuela? Suddenly people are less worried about a supply glut.

Gold and silver miners also advanced last week, supported by the Fed’s increasingly dovish stance. Ditto for homebuilders, another industry that benefits from lower interest rates. Latin American stocks and airlines outperformed the S&P 500 as well.

Smaller software companies including Veeva Systems (VEEV), Cadence Design (CDNS), Okta (OKTA), EPAM Systems (EPAM), Twilio (TWLO) and Coupa Software (COUP) reached new highs. Maybe the “growth” trade isn’t dead. Maybe it’s just migrating to newer places.

Consumer discretionaries fared the worst after Amazon.com (AMZN) warned of slowing revenue and rising expenses. Other retailers like Kohl’s (KSS) and Nordstom (JWN) remained under pressure following bad same-store sales in mid-January. Good economy or not, this sector is still challenged by a shift in spending from stuff to experiences. At least that was one takeaway from January’s non-farm payrolls report.

The worst-performing member of the S&P 500 last week was Allergan (AGN). The drugmaker fell 10 percent after sales and guidance missed estimates. Chipmaker Nvidia (NVDA) fell a similar amount on similar news. Juniper Networks (JNPR) was in the same boat.

S&P 500 with 100-day moving average and Line at Price indicator.

Apart from the weekly gain, the S&P 500 rose 7.9 percent in January. That was its best month since October 2015.

The index is back near its 100-day moving average and closed at its highest level since December 3. Other benchmarks like the Nasdaq-100 and Dow Jones Industrial Average are at comparable levels on their charts.

Forward Calendar

This week has fewer economic events, but earnings keep flowing. Alphabet (GOOGL) and Seagate (STX) report in the afternoon.

Tomorrow brings Walt Disney (DIS), Snap (SNAP), Skyworks (SWKS) and Electronic Arts (EA). The Institute for Supply Management’s service-sector index is also due in the morning.

General Motors (GM), Eli Lilly (LLY) and Take-Two Interactive (TTWO) are among the big names on Wednesday. Crude oil inventories are also due in the morning and Fed Chair Jerome Powell has a town hall in the evening.

Thursday features Twitter (TWTR) and several less-traded names. Initial jobless claims are the main economic report.

Friday doesn’t have any data, although Arconic (ARNC) and Cleveland Cliffs (CLF) announce results.

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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.