Stocks Break Out to New Highs as One Fear After Another Melts Away

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Stocks Break Out to New Highs as One Fear After Another Melts Away

Stocks broke out to new highs last week as economic and trade fears evaporated, drawing naysayers back to the market.

The S&P 500 rose 1.5 percent between Friday, October 25, and Friday, November 1. It was the index’s fourth straight positive week, helping deliver a 2 percent gain for the month of October.

It was an extremely busy week, with most big events taking a positive turn. The Federal Reserve cut interest rates and signaled it won’t raise them anytime soon. Meanwhile, payroll numbers from both the Labor Department and ADP showed better-than-expected job growth.

Gross domestic product also surprised to the upside thanks to consumer spending. Low rates, strong employment and a healthy consumer going into the holidays. How’s that bad?

S&P 500 index with 8-day exponential and 50-day simple moving averages, plus key levels.
S&P 500 index with 8-day exponential and 50-day simple moving averages, plus key levels.

And there was good news from Chinese factories, where activity rebounded last month. Perhaps more important, Beijing said on Friday that it had “reached a consensus on principles” for a trade deal with President Trump. Corporate America’s biggest worry — tariffs — could be fading.

Value Trade Continues

Apple (AAPL) flew to new highs after quarterly results showed it’s continuing to evolve toward services and wearables. Its market cap is now firmly above $1 trillion.

Speaking of China and AAPL, China announced it would launch 5G networking earlier than expected. The Apple TV+ service was also rolled out.

Despite AAPL’s breakout, investors continued their recent shift toward “value” stocks over “growth” last week. Just look at health care, which lagged for most of 2019 but was the strongest major sector last week. Biotech and pharma names like Amgen (AMGN) and Pfizer (PFE) led the charge.

Financials, industrials and small caps also outperformed. Remember that those are “cyclical,” and generally benefit from an improving economy. They’re also included in “value” indexes because they’re not associated with flashy growth areas like software and computing.

Value stocks showing relative strength vs. S&P 500.
Value stocks showing relative strength vs. S&P 500.

Safe havens” like real-estate investment trusts and utilities led to the downside. Those sectors previously rallied as investors worried about a recession, so last week money drained away from them.

Mergers Make a Comeback

Merger activity made a comeback as Alphabet (GOOGL) gobbled up device maker Fitbit (FIT) and Fiat Chrysler (FCAU) agreed to join with Peugeot.

LVMH made an unsolicited takeover bid for luxury retailer Tiffany (TIF). That made TIF the biggest gainers in the S&P 500 last week, up 29 percent.

Qorvo (QRVO) followed with a 23 percent rally after beating estimates. The semiconductor maker also reported strong growth in China’s 5G market. A multitrillion dollar buildout is underway, with huge implications for tech over the next several years. This story is just getting started.

General Electric (GE) was another big mover last week. The one-time blue chip surged 15 percent after management fixed profitability in its core industrial operations. That’s important when you’re carrying more than $90 billion of debt.

Arista Networks (ANET) found itself on the other end of the rankings, plunging 24 percent Friday to Friday after losing a key client and cutting guidance. C.H. Robinson (CHRW) had the second-biggest drop in the S&P 500 last week. The trucking company crashed 17 percent after earnings, revenue and estimates came up short.

General Electric (GE) chart with 50- and 200-day moving averages.
General Electric (GE) chart with 50- and 200-day moving averages.

Streaming Video in Focus

Earnings season continues this week, led by communication and health-care companies. There’s also a focus on streaming video with Roku (ROKU) and Walt Disney (DIS) reporting.

Uber Technologies (UBER) is the biggest name today, issuing results for the third time as a public company.

Tomorrow features the Institute for Supply Management’s services index, plus numbers from drug maker Mylan (MYL) and dating service Match (MTCH).

Crude oil-inventories are due Wednesday. ROKU, Qualcomm (QCOM), Square (SQ), CVS Health (CVS) and Baidu (BIDU) are some of the big earnings names.

Thursday brings initial jobless claims. Activision Blizzard (ATVI) and DIS report quarterly numbers. The big story with DIS will likely be its Disney+ streaming service launching next Tuesday, November 12.

The week ends with consumer sentiment on Friday morning. That’s the first of several big retail-sector catalysts coming through the end of November. Here’s a quick rundown of what to expect:

  • 14th: Wal-Mart Stores (WMT) earnings
  • 15th: Monthly retail sales from the Commerce Department
  • 19th-21st: Earnings from Home Depot (HD), Lowe’s (LOW) and other retailers
  • 29th: Black Friday
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