By Pete Biebel, Senior Vice President

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That was different!  Following months of heightened market volatility with unusually wide daily and weekly ranges, last week had the narrowest weekly range in more than three months.  True, it was just a four-session week, but the range between the high and low of the week on the S&P 500 Index (SPX) was a little over 59 points.  The previous sixteen weeks had an average range of more than 122 points.  Three of those sixteen weeks had more than triple the range of last week.  By contrast, of the twenty weeks leading into late-September, nineteen of them had a narrower range than last week, with five of those weeks having less than half of last week’s range.  It’s surprising how normal can seem so dull after such a wild stretch through the end of last year.

What the market did do last week wasn’t much.  Net for the week, the averages barely budged.  Solid gains on Friday lifted the indices back to near unchanged for the week.  Both the Dow Jones Industrial Average (DJIA) and the NASDAQ Composite Index (COMP) gained about 0.1% for the week while SPX rebounded to limit its loss to just 0.22%.

What the market didn’t do last week was much more significant.  Recall that last week I described a few potential developments to watch for that might signal the reemergence of a more bearish outlook.  “One of the first signs we might see of a returning bear is the averages closing near their lows of the day and/or giving back big chunks of early gains later in the trading session.  A second bad omen would be if the indices see follow-through selling after breaking below nearby key levels.  For SPX those levels would be the 50-day moving average (near 2625) and the 2580 – 2600 range.”

While the averages traded in the red in three of the market’s four sessions last week, they ended the sessions well off their lows each day.  Even more significant was the market’s ability to avoid a breakdown early in the week.  Following the Monday holiday, stocks opened sharply lower on Tuesday morning.  The decline worsened as the day wore on.  By just after midday, SPX had tumbled about 1.8% before bouncing off its 50-day moving average.  That first bounce was less than enthusiastic, and SPX punched below its 50-day about an hour later.  With less than an hour left in the session, SPX was near its low of the day around 2618.

So, with the averages teetering on the brink of a potential breakdown late in the day, things could have gotten very messy, but they didn’t.  A last hour rally lifted SPX back above its 50-day to close near 2633.  Both DJIA and COMP also tagged their 50-day moving averages that afternoon but ended the day comfortably above those levels.  In one scary session, SPX approached but avoided both bad omens.

Things got scary again on Wednesday morning when an opening gap higher was reversed and the averages again sank to or below their respective 50-day averages.  COMP and SPX both dipped below their Tuesday lows that morning.  Yet, again, the bad omens were avoided when those indices recovered and ended the day with net gains.

Another thing the market didn’t do last week was give back big chunks of early-day gains.  In fact, as noted above, Tuesday and Wednesday displayed just the opposite: Both days saw big chunks of early losses recovered by the final bell.

With the averages just flat for the week, only four of the eleven S&P industry sectors had net gains.  The Real Estate sector led with a gain of almost 1 ½% and has now gained a little more than 7% over the past five weeks.  The Technology sector was next-best, climbing almost 1% to increase its five-week gain to nearly 11%.  Three of the S&P sectors had losses of more than 1% for the week: Energy, Healthcare and Consumer Staples.  The best performers last week were Dollar-sensitive sectors like currencies, emerging market equities and gold.  Despite gapping lower early in the week, Gold ended last week at its highest level in seven months.

The market’s ability to avoid significant damage given the early-week weakness keeps alive the hope for seeing higher rebound highs in the next week or two.  This week presents a good opportunity for SPX to challenge its rebound high near 2675.  Climbing a bit beyond that high doesn’t seem to be too much to ask, though to or through the 2740s still seems unlikely.  Be on guard for a high this week that falls just short of the 2675 level or which punches briefly above that level but quickly falls back.

While the market has so far avoided giving back much of the January rebound, the potential for a test of the December lows has not diminished to a significant degree.  And, while market volatility has begun to ease back toward more normal levels, it’s probably still too soon to be an aggressive bargain hunter.

The week ahead is likely to see a reawakening of napping volatility.  In addition to the continuing potential for market moving news regarding tariffs, wall funding, even Brexit and liquidity injections from the Peoples Bank of China, the mid-week Fed meeting announcement is always good for a bit of a wake-up call.  Also, this will be the busiest week of the new Earnings Season, and will include earnings announcements from several of the largest companies in the land.

Date Report Previous Consensus
Monday 1/28/2019 Chicago Fed National Activity Index 0.22 0.15
Dallas Fed Manufacturing Survey, General Activity -5.1 -4.6
Tuesday 1/29/2019 S&P Case-Shiller Home Price Index, M/M +0.4% +0.3%
Consumer Confidence 128.1 124.8
Wednesday 1/30/2019 ADP Employment Report +271K 167K
Real GDP, Q/Q, SAAR +3.4% +2.6%
Pending Home Sales Index, M/M -0.7% +0.1%
FOMC Meeting Announcement and Press Conf.
Thursday 1/31/2019 Initial Jobless Claim  199K 199K
Personal Income & Outlays, Income, M/M +0.2%  +0.4%
Personal Income & Outlays, Spending, M/M +0.4% +0.3%
Chicago PMI 65.4  62.5
Friday 2/1/2019 Employment Situation, Non-Farm Payrolls, M/M +312K +158K
Employment Situation, Unemployment Rate 3.9%  3.9%
PMI Manufacturing Index 53.8
ISM Manufacturing Index 54.1 54.0
Construction Spending, M/M +0.2%
Consumer Sentiment 90.7 91.4

Links to previously published commentaries can be found at News/Blog/Market.