Stocks Drift Higher, Almost Erasing Fourth-Quarter Selloff

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Stocks Drift Higher, Almost Erasing Fourth Quarter Selloff

Stocks rose again last week, erasing the fourth quarter’s violent drop, as worst-case scenarios keep falling apart.

The S&P 500 rose 2 percent between Friday March 29, and Friday, April 5. It was the twelfth gain in the 15 weeks since Christmas. About 80 percent of the companies in the index pushed higher.

Nine of the 11 major sectors advanced, led by risk-on groups like materials and financials. Consumer staples and utilities, typically considered safe havens, were the only losers. Cboe’s volatility index, the VIX, also shriveled to a six-month low as fear drained out of the market.

Speaking of fear, we entered the week worried about a recession. But then the Institute for Supply Management’s manufacturing index beat estimates as new orders rose. Construction spending showed a surprise surge thanks to state and local governments.

Jobless claims fell to their lowest level in almost 50 years. Even better, the Labor Department’s non-farm payrolls report rebounded more than expected from a terrible reading in February.

Sure, there were some weak reports, like ADP’s private-sector jobs and ISM’s service-sector index. But overall it remained a “Goldilocks” scenario, with growth steady enough to avoid a recession and inflation slow enough to keep interest rates low. Not too hot, not too cold!

Drilling Deeper

There was also more positive news in the semiconductor space, which struggled just a couple of months ago. Solar energy stocks, airlines, home builders banks and oil-field services also outperformed.

Casino operator Wynn Resorts (WYNN) ripped 18 percent last week after strong monthly gaming revenue from Macau. That made it the biggest gainer in the S&P 500. Advanced Micro Devices (AMD) followed with a 14 percent gain.

Walgreen Boots Alliance (WBA), on the other hand, cratered 13 percent after weak drug pricing caused the pharmacy giant to slash guidance. That was the index’s biggest decline by far.

S&P 500 chart showing potential resistance zone and recent "golden cross."
S&P 500 chart showing potential resistance zone and recent “golden cross.”

Resistance on the Chart?

The S&P 500 had a so-called golden cross last week, a potential sign that longer-term momentum has improved. The index has also returned to its highest level since early in the fourth quarter.

Last week’s close at 2893 was near the same area where it consolidated October 8-9. After that period, it knifed through its 50-day moving average on high volume and proceeded to suffer its biggest crash of the decade. Will that make chart watchers worry about resistance in the near term?

That could be especially true as we enter a quiet week before the big deluge of earnings later in the month.

Factory orders are the only event scheduled for today, followed by nothing tomorrow.

Wednesday brings a European Central Bank meeting, consumer-price inflation and crude oil inventories. Minutes from the last Federal Reserve meeting are also due in the afternoon.

Thursday features jobless claims and producer-price inflation.

Financial earnings from megabanks JPMorgan Chase (JPM) and Wells Fargo (WFC) conclude the week on Friday, along with consumer sentiment.

In addition, traders should be on the lookout for headlines regarding President Trump’s trade talks with China and Brexit. Fed Chair Jerome Powell is also scheduled to speak at a Democratic Party retreat between Wednesday and Friday, although the exact timing doesn’t seem to be public yet.

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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.