Market Recap - Mixed Week as Earnings Season Begins with Rotational Trade

This week saw the Nasdaq Composite (-1.1%) finally take a breather, as money flowed out of mega-cap technology stocks and into value-oriented cyclical stocks. The S&P 500 advanced 1.3%, trailing both the Dow Jones Industrial Average (+2.3%) and Russell 2000 (+3.6%) in gains this week.

The big banks kicked off the Q2 earnings season with large provisions for credit losses, but that didn’t deter investors from investing in this unloved space this week. The S&P 500 financials sector rose 2.0% as part of the rotational trade, and it’s worth mentioning that most reporting companies did exceed quarterly expectations.

The industrials (+5.8%) and materials (+5.4%) sectors benefited the most from this rotation, though, rising more than 5.0%. The health care sector (+5.1%) also outperformed, deriving its strength from another round of encouraging vaccine news.

Specifically, two COVID-19 vaccine candidates from the Pfizer (PFE) and BioNTech (BNTX) collaboration received fast-track designation from the FDA, and Moderna’s (MRNA) vaccine candidate elicited neutralizing antibodies in all 45 participants in a Phase 1 study.

The market, however, was slowed down by the negative week in mega-cap technology stocks, pestering U.S.-China tensions, and a rollback in the reopening process in California due to the rising coronavirus caseload. In addition, the inability of the S&P 500 to stay above its June 8 closing level (3232.39) kept the bulls in check.

Netflix (NFLX) shares fell 10%, with a bulk of those losses coming after the company issued cautious subscriber guidance at the end of the week. Amazon (AMZN) and Microsoft (MSFT) pulled back 7% and 5%, respectively, following strong performances in the prior week.

U.S. Treasuries traded near their flat lines all week. The 2-yr yield declined two basis points to 0.14%, and the 10-yr yield was unchanged at 0.63%. The U.S. Dollar Index declined 0.7% to 95.95. WTI crude futures finished little changed at $40.56/bbl.

Market Recap - Mega-cap Technology Stocks Power Wall Street higher Ahead of Q2 Earnings

The Nasdaq Composite was where most of the action was this week, as it rose 4.0% and closed at a record high in four of the five trading sessions.

The S&P 500 rose a respectable 1.8%, followed by a 1.0% gain in the Dow Jones Industrial Average. The small-cap Russell 2000, however, declined 0.6%.

The S&P 500 consumer discretionary (+4.8%), communication services (+4.7%), and information technology (+2.7%) sectors were largely responsible for the market’s advance. Conversely, the energy (-4.6%), real estate (-1.8%), industrials (-1.4%), health care (-0.9%), and utilities (-0.2%) sectors finished lower.

This week’s action started with a front‐page editorial in one of China’s state‐run news outlets that suggested a “healthy bull market” was imminent for Chinese stocks. China’s Shanghai Composite rose 7.3% this week. On Wall Street, the bull market in mega‐cap technology stocks was hard to miss.

Tesla (TSLA) rose 27% in a pure momentum trade. Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), and Facebook (FB) rose between 3‐6%. Amazon (AMZN) rose 10% -- brushing past reports that Walmart (WMT) is planning to launch a competing delivery service this month. WMT shares also gained 10%.

On Friday, many of the mega-cap technology stocks did take a breather, as investors rotated back into cyclical/ value stocks following some positive remdesivir news. Gilead Sciences (GILD) said new data showed an improvement in severely ill COVID-19 patients and a 62% reduction in the risk of mortality compared to the standard of care.

In M&A news, Warren Buffett made his first major deal during the pandemic, agreeing to acquire Dominion Energy’s (D) natural gas assets for $4 billion in cash and assuming $5.7 billion in debt. Uber (UBER) agreed to acquire Postmates for $2.65 billion.

U.S. Treasuries finished the week mixed. The 2-yr yield increased one basis point to 0.16%, while the 10‐yr yield decreased four basis points to 0.63%. The U.S. Dollar Index declined 0.7% to 96.63. WTI crude increased 0.4% to $40.57/bbl.

Market Recap - Market Reaps Big, Pre-Holiday Gains

The S&P 500 rose 4.0% this week to recoup last week’s decline and some, as the market entered the third quarter with the same rebounding mindset as last quarter. The Nasdaq Composite (+4.6%) edged out the benchmark index to close at a record high. The Dow Jones Industrial Average rose 3.3%, and Russell 2000 rose 3.9%.

The gains were broad and noteworthy. All 11 S&P 500 sectors closed in positive territory with gains ranging from 1.6% (financials) to 5.6% (communication services). The financial sector was the only sector to advance less than 2.0% this week.

Interestingly, this week was not all that different from last week from a macro news perspective. Companies and states continued to take preemptive measures to help slow down the record count of new coronavirus cases, while economic data continued to depict a faster than expected recovery. This time, though, the market bestowed its faith in a recovery.

In the labor market, nonfarm payrolls increased by 4.800 million in June (Briefing.com consensus 3.50 million), the unemployment rate ticked lower to 11.1% in June (Briefing.com consensus 12.6%) from 13.3% in May, and weekly initial claims declined for the 13th straight week to 1.427 million (Briefing.com consensus 1.355 million).

Outside the labor market, the ISM Manufacturing Index for June returned into expansionary mode with a 52.6% reading (Briefing.com consensus 49.2%), pending home sales rebounded 44.3% m/m in May (Briefing. com consensus +18.0%), and factory orders rebounded 8.0% in May (Briefing.com consensus +7.0%).

In other positive developments, Boeing (BA) resumed 737 MAX flights for certification, and Pfizer (PFE) and BioNTech (BNTX) reportedly made progress on their COVID-19 vaccine candidate.

Tesla (TSLA) shares surged 26% this week, bringing its market cap to $224 billion, as money continued to flow into momentum stocks. The company also pleased investors at the end of the week with news that it delivered approximately 90,650 vehicles in the second quarter.

U.S. Treasuries finished mixed this week. The 2-yr yield declined one basis point to 0.15%, while the 10-yr yield increased three basis points to 0.68%. The U.S. Dollar Index declined 0.2% to 97.22. WTI crude futures rose 5.0%, or $1.93, to $40.42/bbl.

Market Recap - Re-acceleration in Coronavirus Cases Takes Market Lower

The first few days of the week started off great, but the back half of the week saw heavy selling as governments and companies were forced to respond to a rise in new coronavirus cases with preemptive measures. The Dow Jones Industrial Average fell 3.1%, followed by losses in the S&P 500 (-2.9%), Russell 2000 (-2.8%), and Nasdaq Composite (-1.9%).

This week’s biggest decliners were the S&P 500 energy (-6.5%), financials (-5.3%), and communication services (-5.2%) sectors. The information technology sector declined just 0.5%.

There was an onslaught of negative-sounding developments that heightened concerns about the pace of a recovery, which ultimately put a stop to the Nasdaq’s eight-session winning streak. Notable headlines included the following:

• The U.S. reported daily highs in new coronavirus cases amid an acceleration in more younger people getting infected.

• New York Governor Cuomo announced that the tristate area will be imposing a 14-day quarantine on travelers coming from coronavirus hotspots.

• The EU was reportedly considering its own restrictions on U.S. travelers, banning them from entering when it relaxes its border restrictions on July 1.

• Texas and Florida scaled back reopening efforts.

• Apple (AAPL) re-closed stores in Houston and Florida, and Walt Disney (DIS) postponed the reopening date of Disneyland past July 17.

Re-thinking the reopening strategy could temper the rebounding economic data that have contributed to the market’s recovery. The latest May data showed new home sales rebound 16.6% m/m to a seasonally adjusted annual rate of 676,000 (Briefing.com consensus 635,000), durable goods orders rebound 15.8% m/m, and personal spending rebound 8.2% m/m (Briefing.com consensus +7.0%).

The re-acceleration of cases also threatens to undo some of the progress in the labor market that the government spent a lot of money to stabilize. Weekly jobless claims for the week ending June 20 decreased by just 60,000 to 1.480 million (Briefing.com consensus 1.250 million).

In the financials space, regulators relaxed some Volcker Rule restrictions, allowing banks to increase their investments in a broad set of venture capital funds. Out of an abundance of caution, though, the Fed will require banks to suspend share repurchases and cap dividend payments in the third quarter following its stress tests results.

Separately, social media stocks succumbed to heavy selling at the end of the week after more companies halted ad spending on Facebook (FB). Shares of Facebook fell 9.5% this week.

U.S. Treasuries finished the week with modest gains. The 2-yr yield declined three basis points to 0.16%, and the 10-yr yield declined six basis points to 0.64%. The U.S. Dollar Index declined 0.2% to 97.45. WTI crude fell 3.2% (-$1.35) to $38.49/bbl.

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Market Recap - Stock Market Recovers Some Losses this Week

The S&P 500 advanced 1.9% this week, recouping some losses from the prior week. The Nasdaq Composite outperformed again with a 3.7% gain, followed by the Russell 2000 (+2.2%) and Dow Jones Industrial Average (+1.0%).

Eight of the 11 S&P 500 sectors finished the week with gains, including the health care (+3.1%), information technology (+2.8%), consumer staples (+2.4%), and consumer discretionary (+2.3%) sectors. The utilities (-2.4%), energy (-1.0%), and real estate (-0.8%) sectors closed lower.

The week started with stocks extending last week’s sharp pullback, but investors quickly started buying the dip, accentuated by the Fed announcing on Monday that it will start buying individual corporate bonds through its Secondary Market Corporate Credit Facility.

Risk sentiment was later buoyed after retail sales rebounded 17.7% m/m in May (Briefing. com consensus 9.0%), Bloomberg reported that President Trump was preparing a $1 trillion infrastructure proposal, and the BBC reported on a steroidal treatment for COVID-19 in the UK that reduced deaths in severely ill patients.

The reopening narrative was back in play, evidenced by the 10% gain in WTI crude futures ($39.74/bbl, $3.50, +9.7%), but it did run into some resistance at the end of the week.

Boston Fed President Rosengren warned that economic rebound in the second half of the year will likely be slower than initially expected due to the continued spread of the coronavirus. Arizona, Florida, and California reported noticeable daily increases in coronavirus cases, and it was reported that Apple (AAPL) will temporarily re-close some stores again due to COVID risks.

In other developments, initial jobless claims for the week ending June 13 remained elevated at 1.508 million (Briefing.com consensus 1.350 million), and Fed Chair Powell provided his semiannual monetary policy testimony before Congress this week. Mr. Powell reminded lawmakers of their spending powers, reiterating they should do more to support the economy.

U.S. Treasuries traded in a relatively narrow range this week and closed near their starting positions. The 2-yr yield increased one basis point to 0.19%, and the 10-yr yield was flat at 0.70%. The U.S. Dollar Index gained 0.4% to 97.67.

Market Recap - Market Declines in Worst Week Since March

The stock market started the week hitting key milestone -- the S&P 500 turned positive for the year, and the Nasdaq Composite rose above 10,000 for the first time -- but succumbed to profit taking that handed it its worst week since March. The S&P 500 fell 4.8%, the Nasdaq fell 2.3%, the Dow Jones Industrial Average fell 5.6%, the Russell 2000 fell 7.9%.

A bulk of this week’s losses came on Thursday when the S&P 500 declined 5.9% (it reclaimed some losses on Friday). There was no specific news catalyst that contributed to the decline, but some blamed the Fed for its cautious June FOMC statement while others pointed to data showing increasing rates of coronavirus in many U.S. states.

The Fed didn’t suddenly change its tune, though, and the market had chosen to ignore the coronavirus threat in recent weeks. The market may have just gone up too much, too fast. At Monday’s high, the S&P 500 had gained as much as 48% from its March 23 low despite the uncertainty facing the economy.

All 11 S&P 500 sectors finished the week with losses ranging from 2.0% (information technology) to 11.1% (energy). The value, cyclical, and bankrupt stocks that exhibited strength early in the week were hit the hardest, while the mega-caps performed relatively well amid a slew of price target increases from brokerage firms.

At this week’s policy meeting, the Fed kept the target range for the fed funds rate unchanged at 0.00-0.25%, and its dot plot signaled rates will remain near zero through at least 2022. The Fed’s economic projections called for a 6.5% contraction in 2020 GDP, followed by 5.0% growth in 2021. Core PCE inflation is expected to remain below the Fed’s 2.0% target through 2020.

U.S. Treasuries ended the week with curve-flattening gains. The 2-yr yield declined three basis points to 0.18%, and the 10-yr yield declined 20 basis points to 0.70%. The U.S. Dollar Index increased 0.2% to 97.11. WTI crude fell 8.3% to $36.24/bbl. The CBOE Volatility Index spiked 47% to 36.09, which reflected increased hedging interest against further equity weakness.

Market Recap - Weekly Gains Boosted by May Employment Report

The S&P 500 rose 4.9% this week, closing just below the 3200 level on the back of improving economic data, recovery optimism, and a fear of missing out. The Dow Jones Industrial Average (+6.8%) and Russell 2000 (+8.1%) easily outperformed amid strength in value stocks and small caps. The Nasdaq Composite increased 2.1% and set a new intraday high.

For good reason, the May Employment Situation Report received the most attention this week, as it came in much better than expected. Nonfarm payrolls increased by 2.509 million (Briefing.com consensus -8.5 million), nonfarm private payrolls increased by 3.094 million (Briefing.com consensus -8.8 million), and the unemployment rate decreased to 13.3% (Briefing.com consensus 19.9%) from 14.7% in April.

The S&P 500 more than doubled its weekly gains on Friday (from +2.2% to +4.9%) following its release, as the data suggested that a recovery was happening faster than expected. All 11 S&P 500 sectors ended the week with gains, but it was the cyclical sectors, which stand to benefit the most from an increase in economic activity, that outperformed.

The battered energy (+15.4%), financials (+12.2%), and industrials (+10.5%) sectors rose more than 10%, while the health care sector (+0.2%) barely closed higher for the week. Every other S&P 500 sector rose at least 2.0%. Energy stocks were buoyed by the continued rise in oil prices ($39.50, +4.17, +11.8%).

Earlier in the week, investors continued to hear positive business updates from companies, including American Airlines (AAL), Visa (V), and Lyft (LYFT).

AAL shares surged 77% this week, most of which came after the company announced plans to increase its domestic flying schedule for the summer travel season due to improving demand. Boeing (BA) shares rose 41%.

The price action was described as a “pain trade” due to the market’s relentless gains that appeared to cause some chasing action from underallocated investors. The gains weren’t limited to just the U.S., though. The iShares MSCI Emerging Markets ETF (EEM) rose 8.5%, and the Europe Stoxx 600 rose 7.1%.

In Europe, the ECB increased its pandemic emergency purchase program by EUR600 billion to a total of EUR1.350 trillion. The euro continued to rise against the dollar on hopes for a stronger fiscal union, which contributed to another 1.4% weekly decline in the U.S. Dollar Index (97.00).

Longer-dated U.S. Treasuries sold off this week, which drove yields noticeably higher. The benchmark 10-yr yield rose 25 basis points to 90%, while the 2-yr yield increased six basis points to 0.21%.

Market Recap - Broad-Based Gains Lift S&P 500 Back Above Its 200- Day Moving Average

The stock market extended its rally this week on continued optimism about an economic recovery and a fear of missing out on further gains. The Dow Jones Industrial Average outperformed with a 3.8% gain, followed by the S&P 500 (+3.0%), Russell 2000 (+2.8%), and Nasdaq Composite (+1.8%).

Positive developments this week included the CEOs of JPMorgan Chase (JPM) and Bank of America (BAC) offering hopeful recovery commentary, Boeing (BA) observing some “green shoots” in its business, Merck (MRK) and Novavax (NVAX) joining the race for a COVID-19 vaccine, and Senate Majority Leader McConnell saying Senate discussions for a fifth COVID-19 relief bill will start in June.

All 11 S&P 500 sectors finished in positive territory and helped the S&P 500 close firmly above its 200 day-moving average (3001).

Value-oriented stocks within the S&P 500 financials (+6.6%) and industrials (+6.0%) sectors advanced the most on the view that these beaten-down stocks would outperform in an economic recovery. Defensive-oriented stocks within the utilities (+5.7%) and real estate (+5.8%) sectors, however, also outperformed.

There was a lot of uncertainty regarding U.S.- China relations this week after China approved legislation to tighten its control over Hong Kong. President Trump, in response, said the U.S. will eliminate special treatment for Hong Kong, will study practices of Chinese companies on U.S. exchanges, and will terminate its relationship with the World Health Organization.

What he didn’t say mattered more, though. He didn’t mention additional tariffs or anything about backtracking from the Phase One trade deal. President Trump also took aim at social media companies after Twitter (TWTR) flagged several of his tweets. Specifically, Mr. Trump signed an executive order to limit legal protections for social media companies that unfairly suppress free speech.

One of the more interesting data points this week showed personal income rise 10.5% in April (Briefing.com consensus -6.5%), boosted by the stimulus checks authorized by Congress, and the personal savings rate surge to a record 33.0%. What is done with those savings will be key to the recovery trajectory.

U.S. Treasuries posted small gains this week. The 2-yr yield declined two basis points to 0.15%, and the 10-yr yield declined one basis point to 0.65%. The U.S. Dollar Index declined 1.6% to 98.31. WTI crude rose 6.3% (+$2.08) to $35.33/bbl.

Market Recap - Market Bounces Back to Early March Levels

The stock market resumed its bullish demeanor this week, helped by a positive vaccine update and a prevailing reopening enthusiasm that lifted most sectors. The S&P 500 (+3.2%), Dow Jones Industrial Average (+3.3%), and Nasdaq Composite (+3.4%) rose slightly more than 3%, while the small-cap Russell 2000 climbed 7.8%.

A bulk of this week’s gains came at Monday’s open after Moderna (MRNA) said a Phase 1 study for its COVID-19 vaccine candidate yielded positive interim clinical results. A Stat News article later cautioned about the lack of critical data provided, but Moderna defended its results and NIAID Director Fauci said he was cautiously optimistic about the data.

Other contributing factors included having all 50 U.S. states now partially reopened and Fed Chair Powell reiterating that the central bank is still not out of ammunition. At its high this week, the S&P 500 was within 20 points of its 200-day moving average (3000) and traded at its best level since March 6.

Nine of the 11 S&P 500 sectors gained at least 3.0% this week, including the industrials (+7.2%), energy (+6.1%), and real estate (+5.6%) sectors. Transport stocks provided an extra lift for the industrials space, while energy stocks followed oil prices ($33.25, +3.87, +13.2%) higher. The health care (-0.8%) sector declined this week.

The market was also thrown more weak economic data and news that increased U.S.-China tensions, but none of it was enough to upset the market. U.S.-China news included:

• China indicating plans to implement national security laws on Hong Kong, while a bipartisan group of U.S. Senators planned to introduce legislation to sanction China in response.

• The Senate passing the Holding Foreign Companies Accountable Act, which requires certain foreign companies listed in the U.S. to certify that they are not owned or controlled by a foreign government.

• The White House issuing a report criticizing China’s economic and military policies, and President Trump accusing China of a “disinformation and propaganda attack” on the U.S. and Europe.

Separately, weekly initial claims decreased by 249,000 to 2.438 million (Briefing.com consensus 2.400 million), bringing the nine-week total to 38.636 million. Continuing claims increased to an all-time high of 25.073 million. Reopening efforts should hopefully bring these numbers down in the weeks to come.

It was a relatively quiet week for U.S. Treasuries. The 2-yr yield increased two basis points to 0.17%, while the 10-yr yield decreased two basis points to 0.66%. The U.S. Dollar Index declined 0.6% to 99.77.

Market Recap - Stocks Decline in Week when Fed Chair Cautions About Recovery, U.S.-China Tensions Increase

The stock market closed lower this week, as concerns about an economic recovery, U.S.-China tensions, and valuations weighed on sentiment. The small-cap Russell 2000 underperformed with a steep 5.5% decline, followed by more modest losses in the Dow Jones Industrial Average (-2.7%), S&P 500 (-2.3%), and Nasdaq Composite (-1.2%).

The weakest areas this week were the S&P 500 energy (-7.6%), real estate (-7.3%), industrials (-5.9%), and financials (-5.7%) sectors. The weakness in the energy space came despite strong gains in oil prices, which rose 18.8%, or $4.64, to $29.38/bbl.

The health care sector (+0.9%) was spared this week, helped by its defensive-oriented nature and by the medical progress being made against COVID-19. Quidel (QDEL), for instance, received FDA approval for its COVID-19 antigen test.

The real action this week started with the Fed on Wednesday. Fed Chair Powell said the economic outlook remained highly uncertain and subject to significant downside risks, adding that a recovery may take some time to gather momentum. Mr. Powell dismissed the notion of implementing negative interest rates but suggested additional fiscal stimulus might be needed to prevent long-term economic damage.

Accordingly, House Democrats unveiled a $3 trillion relief bill to start the conversation among lawmakers. Reports later indicated (after the release of another dismal weekly jobless claims report) that the White House was interested in a fourth coronavirus relief bill, but just not the plan outlined by House Democrats.

While the market continued to look past another round of weak economic data, including retail sales for April, it became increasingly difficult to ignore the rising U.S.- China tensions that have contributed to the economic uncertainty referenced by Fed Chair Powell. Elevated equity valuations amid this uncertainty, thus, helped tame buying interest.

U.S.-China tensions were fueled by the Trump administration moving to block semiconductor shipments to Huawei Technologies, the FBI confirming that China-affiliated cyber actors targeted U.S. organizations conducting COVID-19-related research, China reportedly mulling retaliation, and President Trump wanting U.S.-listed Chinese companies to abide by U.S. accounting rules.

U.S. Treasuries posted slim gains this week. The 2-yr yield declined one basis point to 0.15%, and the 10-yr yield declined four basis points to 0.64%. The U.S. Dollar Index increased 0.7% to 100.38.