Stocks just broke a three-week losing streak as President Trump and China made progress to end a trade war between the world’s two largest economies.
The S&P 500 rose 0.6 percent between Friday, October 4, and Friday, October 11. The index also held some important support levels and formed a bullish triangle. Are new highs coming after nearly two years of volatile chopping?
Under Friday’s high-level agreement in Washington, the U.S. will not enforce tariffs scheduled to take effect this week. China also bowed to demands on its currency and intellectual property. There were pledges for grain purchases, as expected.
Economic data was positive as well. Jobless claims dropped more than expected and consumer sentiment beat forecasts as Americans felt more confident about their earning power. Inflation also remained super low as “Goldilocks” conditions remained.
Attention will now turn to corporate earnings season, which starts tomorrow with big financials like JPMorgan Chase (JPM) and Goldman Sachs (GS).
Risk-On Stocks Dominate
Risk-on sectors including transports and materials led the charge last week but remain in longer-term ranges. Both have struggled for more than a year as Trump’s trade war with China weighed the global economy. A big question now is whether they’ll return to favor over the longer-term as tensions calm.
Speaking of calming tensions, officials in Europe may have found a “pathway” to a Brexit deal before the October 31 deadline. That gave European stocks their biggest rally versus the S&P 500 in over two years.
Not surprisingly, safe-havens like utilities, bonds and precious metals fared the worst last week. Consumer-staples also slid about 1 percent and cannabis stocks nosedived 10 percent.
Fastenal (FAST) was the biggest gainer in the S&P 500 last week. Several retailers like Kohl’s (KSS), Nordstrom (JWN) and TJX (TJX) also outperformed amid the positive tariff news and hopes of a strong holiday-shopping season. Caterpillar (CAT), often associated with China, rallied 6 percent.
Another Higher Low
The S&P 500 made another higher low last week. That kept it in an ascending triangle that started in early June. Chart watchers often view that as a bullish continuation pattern, with the potential for new highs.
Bulls may now look for earnings season to fuel a breakout as companies start announcing results this week. Big financials including GS, JPM, Citigroup (C) get the ball rolling tomorrow, along with Johnson & Johnson (JNJ) and UnitedHealth (UNH).
Retail sales could be a big story Wednesday morning because consumer trends have been strong lately. Bank of America (BAC) reports earnings in the premarket. Netflix (NFLX) and International Business Machines (IBM) are due after the close.
Thursday features initial jobless claims and oil inventories. Morgan Stanley (MS), Union Pacific (UNP) and Honeywell (HON) are some of the major earnings.
The week ends with Coca-Cola (KO) and American Express (AXP) on Friday morning.