Stocks follow through
- S&P builds on breakout, small caps rebound
- Economy continues to roll, but inflation cools
- This week: Jobs, Fed rate decision, Big Tech earnings
As traders gear up for a key week of numbers and earnings announcements, the US stock market is coming off fresh all-time highs as bulls appeared to embrace more robust economic data and cool inflation readings.
The S&P 500’s (SPX) 12th up week out of the past 13 may not have had much in the way of day-to-day fireworks, but the index did manage to follow through on its January 19 breakout, and hit record highs every day of the week:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation. Note: It is not possible to invest in an index.)
The headline: Fed in focus as market sets new milestones.
The fine print: Last week’s major economic data points were something of a win-win for the Fed. Fourth-quarter GDP exceeded expectations (the economy is still rolling), while the PCE Price Index came in a little cooler than estimated (inflation is still easing).
The number: 97.4%, the odds the Fed will leave interest rates unchanged this week.1 Despite the “sweet spot” nature of the recent data, the Fed—which has established a solid track record of following through on its talking points—continued to telegraph it won’t cut rates until the second half of 2024.
The scorecard: The small-cap Russell 2000 (RUT) is still negative for the year, but it led the other indexes by a wide margin last week:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Sector returns: The strongest S&P 500 sectors last week were energy (+5.1%), communication services (+4.5%), and financials (+1.9%). The weakest sectors were consumer discretionary (-1.4%), real estate (-0.5%), and health care (-0.3%).
Stock movers: Kura Oncology (KURA) +46% to $19.61 on Wednesday, AppFolio (APPF) +28% to $223.66 on Friday. On the downside, Archer Daniels Midland (ADM) -24% to $51.69 on Monday, Annovis Bio (ANVS) -22% on Wednesday.
Futures: March WTI crude oil (CLH4) rallied to $78.01 on Friday, its highest close since early November. April gold (GCJ4) ended a congested week with a modest loss at $2,017.30. Week’s biggest rallies: March heating oil (HOH4) +7.3%, March WTI crude oil (CLH4) +6.7%. Week’s biggest declines: January Micro ether (METF4) -9.3%. March oats (ZOH4) -4.2%.
Coming this week
After more housing numbers, the spotlight will turn to the Fed and the latest jobs data:
●Tuesday: S&P Case-Shiller Home Price Index, NAHB House Price Index, Job Openings and Labor Turnover Survey (JOLTS), Consumer Confidence
●Wednesday: ADP Employment, Chicago PMI, Fed interest rate announcement
●Thursday: Challenger Job Cuts report, Productivity and Labor Costs, S&P Global Manufacturing PMI, ISM Manufacturing Index, Construction Spending
●Friday: Employment Report, Factory Orders, Consumer Sentiment
It’s earnings season’s “big” week—big oil, big pharma, and big tech, including five of the so-called “Magnificent seven” stocks:
●Monday: SoFi Technologies (SOFI), Cleveland-Cliffs (CLF), F5 (FFIV), Whirlpool (WHR)
●Tuesday: General Motors (GM), JetBlue Airways (JBLU), Pfizer (PFE), United Parcel Service (UPS), Advanced Micro Devices (AMD), Electronic Arts (EA), Alphabet (GOOGL), Microsoft (MSFT), Match Group (MTCH), Starbucks (SBUX), Teradyne (TER)
●Wednesday: Boeing (BA), Lennox (LII), Mastercard (MA), Phillips 66 (PSX), Rockwell Automation (ROK), Silicon Laboratories (SLAB), Qualcomm (QCOM), Qorvo (QRVO)
●Thursday: Quest Diagnostics (DGX), Dover (DOV), Honeywell (HON), Merck (MRK), Apple (AAPL), Amazon (AMZN), Clorox (CLX), Meta (META), Southern Copper (SCCO), SkyWest (SKYW)
●Friday: AbbVie (ABBV), Aon (AON), Avantor (AVTR), Bristol-Myers Squibb (BMY), Chevron (CVX), Regeneron Pharmaceuticals (REGN), Ubiquiti (UI), Exxon Mobil (XOM)
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
Still pushing the envelope
The stock market may have mostly marched in place from mid-December to mid-January, but so far that pause hasn’t disrupted the record-setting nature of the past three months.
Beyond setting multiple new highs, last week marked the first time since December 1985 that the SPX has posted 12 positive weeks in a 13-week span. The time before that was in 1972.
Also, last Thursday marked the second day in a row that the S&P 500 (SPX) and the Cboe Volatility Index (VIX) both closed higher. Since 1990, the SPX closed lower the day after that pattern 54% of the time2 (which it did, barely, on Friday), and tended to underperform over the next few days: After four trading days the SPX was still lower 51% of the time. By contrast, 57.5% of all four-day periods since 1990 have been positive for the SPX.
For additional perspective, readers may also want to check out “Chasing the End of the Economic Cycle,” Morgan Stanley & Co.’s discussion of the macro background of this “expectation-defying” market.
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1 CMEGroup.com. FedWatch Tool. 1/26/24.
2 Figures reflect S&P 500 (SPX) and Cboe Volatility Index (VIX) daily closing prices, January 1990–January 2024. Pattern performance represents the SPX percentage change the day after both it and the VIX closed higher two days in a row (117 instances). Supporting document available upon request.