Stocks Break Out as Jerome Powell Keeps the Party Going

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Stocks Break Out as Jerome Powell Keeps the Party Going

Stocks broke out to new highs last week as Jerome Powell kept the party going.

The S&P 500 rose 0.8 percent to close above 3,000 for the first time ever. The Dow Jones Industrial Average and Nasdaq-100 also set new records. “Risk-on” sectors like emerging markets, semiconductors and energy led the charge — a sign of investor confidence in the business outlook.

Federal Reserve Chairman Powell inspired the move by telling Congress that he’s “prepared to adjust” monetary policy because trade and the global economy “continue to weigh on the U.S. economic outlook.” In other words, expect an interest-rate cut at the next meeting on July 31.

S&P 500, daily chart, with select moving averages.
S&P 500, daily chart, with select moving averages.

Even without that boost, the economy has yet to show any real signs of a breakdown. Initial jobless claims fell more than expected once again and mortgage applications to purchase a home increased. Oil also rallied as inventories fell, lifting energy stocks — one of the weakest corners of the market this year.

The dovish Fed kept money streaming into gold miners. Chip makers, which have heavy exposure to China and the global business cycle, also outperformed.

Discretionaries, Industrials Gain Before Events

The strength in consumer discretionary stocks and industrials really stood out. Not only are they economically sensitive. They also have several catalysts this week, which suggests buyers are hoping for positive news.

Consumer stocks have Amazon.com’s (AMZN) “Prime Day” today and tomorrow. Then there’s retail sales, housing data and consumer sentiment. Industrials, which include airlines and railroads, also have some big earnings reports. See below for the day-by-day agenda.

The weakest parts of the market last week were mostly “safety plays,” like healthcare and utilities. Ironically, utilities should benefit from a dovish Fed because they’re income stocks. The fact investors shunned them is a potentially bullish sign of risk appetite. Selling also intensified in cannabis stocks.

Western Digital (WDC) and Micron Technology (MU) rose the most in the S&P 500 last week, up rising 14 percent and 13 percent respectively. Hopes of better memory-chip prices lifted both.

A trio of healthcare stocks — Humana (HUM), Cigna (CI) and Anthem (ANTM) — followed with gains of 9-10 percent after the White House abandoned a plan that would hurt drug prices.

Biotechnology supplier Illumina (ILMN) was the index’s worst-performer, dropping 19 percent on surprisingly bearish revenue guidance.

Three Buckets of News Coming

This week has several important events, falling into three general buckets:

  1. Consumer news
  2. Political scrutiny on big technology firms
  3. Bank earnings

Today brings the New York Fed’s Empire index of manufacturing activity, along with quarterly results from Citigroup (C). It also marks the start of AMZN’s Prime Day, which ends tomorrow.

Tuesday has three Congressional hearings on big technology companies:

  • 10 a.m. ET: Senators ask questions about Facebook’s (FB) Project Libra cryptocurrency.
  • 2 p.m. ET: Representatives investigate anti-trust matters involving Alphabet (GOOGL), AMZN, FB and Apple (AAPL).
  • 2:30 p.m. ET: Senators investigate possible political bias at GOOGL’s Google search engine.

Other events tomorrow include monthly retail sales and NAHB’s homebuilder index (consumer bucket). JPMorgan Chase (JPM), Goldman Sachs (GS) and Wells Fargo (WFC) announce results (bank bucket). Other earnings include transports CSX (CSX) and United Airlines (UAL).

Wednesday has housing starts and building permits (consumer bucket). Oil inventories and the Fed’s Beige Book report of economic conditions are also due. Bank of America (BAC) and US Bancorp (USB) issue results in the premarket, followed after the closing bell by Netflix (NFLX), EBay (EBAY) and International Business Machines (IBM).

Thursday has initial jobless claims and the Philadelphia Fed’s manufacturing index. Morgan Stanley (MS), Honeywell (HON) and Union Pacific (UNP) issue their numbers in the premarket. Microsoft (MSFT) is the Big Kahuna after the closing bell.

The week concludes with consumer sentiment and American Express (AXP) results Friday morning.

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