Stocks Keep Climbing to Records amid Trade Optimism and Dealmaking

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Stocks Keep Climbing to Records amid Trade Optimism and Dealmaking

Stocks continue their advance into new record territory as trade worries and recession fears keep easing.

The S&P 500 rose 0.9 percent between Friday, November 1, and Friday, November 8. It was the index’s fifth straight positive week, its longest winning streak since the summer of 2018. The Dow Jones Industrial Average and Nasdaq-100 also rose to new highs.

Buyers went to work first thing Monday after the White House signaled it would ease trade restrictions on Chinese tech giant Huawei. Beijing followed with a string of conciliatory moves on Thursday, although President Trump played down the optimism on Friday.

It was also a noteworthy week for deal-making and takeover speculation. Sources told Reuters and CNBC that Walgreen Boots Alliance (WBA) might take itself private in the largest management buyout ever. Xerox (XRX) spun off its stake in Fujifilm and then reportedly prepared a bid for computer maker HP (HPQ).

S&P 500 with 50-day moving average.
S&P 500 with 50-day moving average.

Stryker (SYK) gobbled up Wright Medical (WMGI) and homebuilder Taylor Madison (TMHC) absorbed smaller rival William Lyon Homes (WLH). Bloomin Brands (BLMN), the parent of Outback Steakhouse, also put itself up for sale.

Safe Havens Not So Safe

Another big story was the collapse of safe-haven assets like gold, utilities and real-estate investment trusts. All three had their biggest percentage declines of the year.

Money also streamed out of bonds, lifting yields to their highest levels since August. Back then, investors were fleeing to safety as President Trump took a hard line against China. Just the opposite took place last week.

Meanwhile risk-on assets outperformed. That list included Chinese Internet companies, U.S. banks, energy drillers and transports.

While trade news was the main catalyst last week, strong economic news including the Institute for Supply Management’s Service index and initial jobless claims didn’t hurt either.

DaVita (DVA) was the biggest gainer in the S&P 500 last week, up 17 percent on strong earnings. Ralph Lauren (RL) and XRX followed close behind.

Expedia Travels South

Expedia (EXPE), on the other hand, had its worst drop ever. The online travel agency triggered a wave of bearish analyst calls by missing earnings and revenue estimates. It was the latest example of investors unwinding a traditional “growth” stock.

Trip Advisor (TRIP), a related company, had the second-biggest drop. Under Armour (UAA) followed after cutting guidance and revealing a government accounting probe.

This week’s calendar is quieter, with a handful of big earnings and fewer economic events. Nothing important is scheduled for today.

Expedia (EXPE), weekly chart, showing level from June 2016.
Expedia (EXPE), weekly chart, showing level from June 2016.

Tomorrow features quarterly results from Skyworks Solutions (SWKS), D.R. Horton (DHI), CBS (CBS) and Cronos (CRON).

Wednesday’s big items are consumer-price inflation and Congressional testimony by Federal Reserve Chairman Jerome Powell. Tech giant Cisco Systems (CSCO) reports after the close.

Jobless claims, producer-price inflation and crude-oil inventories follow on Thursday. There are also earnings from Wal-Mart Stores (WMT), Nvidia (NVDA) and Applied Materials (AMAT).

The week ends with monthly retail sales — exactly two weeks before Black Friday. That may focus attention back on consumer stocks as we enter the home stretch into the holidays.

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