Bulls Keep Running as Market’s Fears Melt Away

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Stocks kept rallying last week as one fear after another seemed to evaporate.

Government shutdown? Nope. Trade war with China? Probably not if talks continue. Recession? Just when it looked like things were slowing down, the data turned positive. The pessimists just couldn’t win.

All told, the S&P 500 rose 2.5 percent between Friday, February 8, and Friday, February 15. It was the seventh gain in the last eight weeks for the index. The Dow Jones Industrial Average and the Nasdaq-100 have risen every week since Christmas.

Energy stocks led the move as crude oil futures (@CL) tested their highest level since November. Saudi production cuts (yes, OPEC still exists), plus sanctions on Venezuela and Iran, were the main drivers. Hopes for a trade deal between the U.S. and China — or at least a delay in punitive tariffs — also helped.

Homebuilders were the second-best major group last week despite little news. Small caps, transportation stocks and semiconductors also outperformed. Many of the biggest gainers seemed to be relatively forgotten names.

Large technology companies that formerly led the market underperformed last week. The Nasdaq-100, for instance, rose half as much as the Russell 2000 small-cap index. The NYSE FANG index ($NYFANG on TradeStation), narrowly focused on the most prominent, barely eked out a 1 percent gain.

Economic News Discounted

It was a strange week for economic news because several key numbers were either delayed or potentially distorted by the recent government shutdown. Jobless claims were higher than expected for the third straight week and December’s retail sales had their worst drop of the decade.

That initially fed the doom-and-gloom crowd. But then consumer sentiment and the New York Federal Reserve’s Empire Index beat estimates. Both are more relevant because they covered the current present month of February. The key takeaway is that investors aren’t worried about a recession as long as Chinese tariffs and Brexit get resolved.

Brighthouse Financial (BHF) was the biggest gainer in the S&P 500 last week, up 19 percent despite mixed earnings. Formerly part of MetLife (MET), the annuity provider trades for less than half its book value.

Winners and Losers

Debt-laden cosmetics maker Coty (COTY) followed with an 18 percent gain, continuing to melt higher from a potential turn-around quarterly report the previous week. Arista Networks (ANET), only added to the index last August, ranked third following a strong set of numbers.

Newell Rubbermaid (NWL) led to the downside, dropping 17 percent, after missing virtually across the board. Mattel (MAT) ranked second-worst, reversing a Barbie-fueled bounce with a surprise mid-afternoon profit warning on Friday. Coca-Cola (KO) also made the bottom three after smashing into a wall of rising costs.

S&P 500 index with 50- and 200-day moving averages.

This week only has four trading sessions because of President’s Day. The agenda is quieter, especially because avoidance of the government shutdown could make investors disregard some of the economic data. However, there could be news in Brazil as a new president tries to jump-start Latin America’s biggest economy.

Wal-Mart Stores (WMT) and Medtronic (MDT) are the big earnings reports today. CVS Health (CVS) and minutes from the last Fed meeting follow tomorrow.

Thursday’s the busiest session with durable-goods orders, initial jobless claims and existing home sales. Oil inventories, one day late because of the holiday, could also make a splash. Roku (ROKU) and Dropbox (DBX) report earnings after the close.

Friday brings speeches from several policymakers at the Federal Reserve.

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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.