Stocks Flirt With Highs Amid Strong Economy and Earnings

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Stocks flirted with new highs last week as the economy improved and earnings season got underway.

The S&P 500 was little changed in the holiday-shortened period between Friday, April 12, and Thursday, April 18. At one point, the index touched its highest level since October 4. Meanwhile the Nasdaq-100 probed new territory above 2018’s peaks but failed to break out.

It was week of massive dichotomies. Technology, industrials and financials rose on optimism about the economy and fundamentals. But health care, the second-largest sector, had its worst showing relative to the broader market in a decade as investors worried about political risk.

Let’s start with the economy. Retail sales crushed estimates with their biggest gain in over a year. The number of Americans seeking unemployment benefits dropped to a new 50-year low. The Federal Reserve’s Beige Book detected strengthening in a few of the central bank’s districts.

Quick Turn for Economy

The news represented a sharp improvement from barely a month ago, when professional economists slashed growth forecasts. The turn has been so dramatic that that Atlanta Fed is now expecting growth of 2.8 percent in the first quarter, up from just 0.3 percent in early March. Keep your eyes open for the Commerce Department’s official numbers this Friday, April 26.

Atlanta Fed’s GDP estimate. Notice rising green line on right.

Atlanta Fed’s GDP estimate. Notice rising green line on right.

Housing also got a boost after mortgage applications to purchase a home rose 7 percent to their highest level since 2010. Is this sleeping corner of the U.S. economy finally kicking into gear as incomes rise and millennials move further into their child-raising years?

Earnings were another big story that will only get more important as quarterly reports increase in the coming weeks. Financials like Morgan Stanley (MS) and JPMorgan Chase (JPM) beat estimates, along with key industrials including Honeywell (HON) and Union Pacific (UNP). PepsiCo (PEP) also broke out on signs of reviving demand for its snacks and soft drinks.

Semiconductors continued their rampage to the upside. This time, investors cheered as Qualcomm (QCOM) settled a key patent case against Apple (AAPL). Asian heavyweight Taiwan Semiconductor Manufacturing (TSM) also joined a chorus of companies seeing a rebound in the chip cycle.

Here Comes 5G Networking

Both QCOM and TSM, along with Ericsson (ERIC) cited the spread of 5G networks. Watch for this to become an increasingly important theme for technology stocks over the course of 2019.

QCOM was the S&P 500’s top gainer in the week by far, ripping 40 percent. Advertising agency Omnicom (OMC), tool maker Snap-on (SNA) and equipment-rental company United Rentals (URI) followed on the heels of strong results.

Regeneron Pharmaceuticals (REGN), Centene (CNC) and Nektar Therapeutics (NKTR) were among the biggest losers. It was all part of an epic meltdown in the health-care sector as investors worried about price cuts and the threat of “Medicare for all.” Will this industry have any friends as the next election approaches?

S&P 500 with key moving averages.
S&P 500 with key moving averages.

Aside from healthcare, last week’s worst-performing key groups included gold miners, real-estate investment trusts and utilities. Software makers also kept underperforming relative to chips.

Another item was the successful initial public offerings (IPOs) for Pinterest (PINS) and Zoom Media (ZM). Both priced above their proposed range and proceeded to rally more than 25 percent once they began trading. You know, there’s still time to sign up for ClickIPO before ride-sharing giant Uber (UBER) hits the market in May.

This Week’s Agenda

This week brings plenty of earnings and some important economic numbers. More than 100 members of the S&P 500 will report.

Halliburton (HAL) kicks things off this morning, along with existing home sales.

Tomorrow brings new-home sales, plus results from Coca-Cola (KO), Procter & Gamble (PG) and Twitter (TWTR).

Wednesday’s big names include Boeing (BA) and Caterpillar (CAT) in the morning, along with oil inventories. The afternoon features Facebook (FB), Microsoft (MSFT) and PayPal (PYPL).

Thursday’s the busiest session for earnings, led by companies like 3M (MMM) and United Parcel Service (UPS) in the premarket. Amazon.com (AMZN), Starbucks (SBUX) and Ford Motor (F) are expected after the close. Initial jobless claims and durable-goods orders are also due.

Friday’s big item is first-quarter GDP. Oil majors Exxon Mobil (XOM) and Chevron (CVX) issue their results as well.

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