Bumps in the road

If last week’s stock market action felt familiar, it’s probably because it was about as close to a carbon copy of the previous week as you’re likely to see, at least in terms of the S&P 500’s (SPX) performance.

Two weeks ago DeepSeek triggered a Monday sell-off, and the market’s subsequent rebound was derailed four days later by the White House’s announcement of tariffs on Mexico, Canada, and China. Last week, Monday’s selling unfolded as the tariff story evolved, and the SPX’s intraweek recovery was interrupted on Friday by a surprise from the monthly consumer sentiment report:

The headline: Market pulls back after challenging highs—again.

The fine print: The monthly jobs report is usually the economic headline of its week, but this time it got pushed out of the spotlight by consumer sentiment, which came out 90 minutes later on Friday. The report showed a surprise drop in sentiment (the lowest since last July) and, perhaps more importantly, a surprise increase in year-ahead inflation expectations, from 3.3% to 4.3% (the highest reading since November 2023).

The number: 307,000—the upwardly revised (by 51,000) number of new jobs in December, reported on Friday. Along with an upward revision of November’s payrolls total and a drop in the unemployment rate, January’s softer-than-expected payrolls total (143,000 vs. 175,000 estimated) wasn’t as soft as it may have initially appeared to be.

The scorecard: The Nasdaq 100 (NDX) was the only major index to gain ground last week:

Sector returns: The strongest S&P 500 sectors last week were consumer staples (+1.6%), real estate (+1.3%), and energy (+1.1%). The weakest sectors were consumer discretionary (-3.5%), communication services (-2.1%), and industrials (-0.8%).

Stock movers: GH Research (GHRS) +70% to $17.99, and Triumph Group (TGI) +34% to $25.10, both on Monday. On the downside, Owens & Minor (OMI) -35% to $9.23 on Monday, FMC (FMC) -34% to $35.92 on Wednesday.

Yields: The benchmark 10-year Treasury yield fell 0.06% to 4.49% last week.

Futures: March WTI crude oil (CLH5) declined for a third-consecutive week, falling $1.53 to $71. Gold hit all-time highs every day but Thursday, with April gold (GCJ5) closing Friday at $2,887.60, up $52.60 for the week. Biggest gainers: March natural gas (NGH5) +8.7%, March copper (HGH5) +7.2%. Biggest decliners: February ether (ETHG5) -22.6%, March orange juice (OJH5) -10.9%.

On the economic front, it's mostly about inflation this week, although traders will be parsing Jerome Powell's congressional testimony for any insights into what the Fed is thinking about interest rates:

●Monday: NY Fed consumer inflation expectations
●Tuesday: NFIB Business Optimism Index, Jerome Powell's Semiannual Monetary Policy Report to the Congress (day 1) 
●Wednesday: Consumer Price Index (CPI), Jerome Powell's Semiannual Monetary Policy Report to the Congress (day 2) 
●Thursday: Producer Price Index (PPI)
●Friday: retail sales, Import Price Index, industrial production and capacity utilization, business inventories

More than 600 companies are scheduled to release earnings this week, everything from consumer brands to pharma and tech. Some highlights:

●Monday: Incyte (INCY), McDonald’s (MCD), Monday.com (MNDY), ON Semiconductor (ON), Rockwell Automation (ROK), Tower Semiconductor (TSEM), Lattice Semiconductor (LSCC), Medpace (MEDP), Vertex Pharmaceuticals (VRTX)
●Tuesday: AutoNation (AN), BP (BP), Humana (HUM), WK Kellogg (KLG), Coca Cola (KO), Shopify (SHOP), Doordash (DASH), Lyft (LYFT), Mercury General (MCY), Upstart (UPST), Zillow (ZG)
●Wednesday: CVS (CVS), Kraft Heinz (KHC), Martin Marietta (MLM), Restaurant Brands (QSR), Cisco (CSCO), Paycom (PAYC), Reddit (RDDT), Royal Gold (RGLD), The Trade Desk (TTD), Williams Companies (WMB)
●Thursday: Datadog (DDOG), Deere (DE), Global Payments (GPN), Molson Coors (TAP), Airbnb (ABNB), Applied Materials (AMAT), Coinbase (COIN), Palo Alto Networks (PANW), Roku (ROKU), Wynn Resorts (WYNN), Yelp (YELP)
●Friday: Moderna (MRNA), Treehouse Foods (THS), United States Cellular (USM)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

“Bulls take January” noted that while February has, historically, been an up month for US stocks more often than a down one, its returns have, on average, been on the weak side. The following chart shows two versions of the SPX’s “typical” path throughout February—the average (blue) and median (green) month-to-date returns, measured from the closing price on the last day of January:

With the SPX down 0.24% for February as of Friday, the index was underperforming its historical benchmarks. The SPX’s average month-to-date return five days into February was +0.28%, while its median return was an even higher +0.64%.¹ Overall, this chart shows most of the market’s upside has tended to occur earlier in the month—with one possible exception.

Although the average and median returns aren’t always highly correlated, they do converge at a relative low point on day 16. The median return line rises notably over the next four trading days. This has, in fact, been a relatively bullish cluster of days for the SPX, with the index posting a positive net return 68% of the time (46 of the past 68 years). Overall, only 56% of the SPX’s four-day periods since 1957 have had positive returns.

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¹ All figures reflect S&P 500 (SPX) daily closing prices, 1957-2024. Supporting document available upon request.