By Pete Biebel, Senior Vice President

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Stocks easily continued higher last week with both the Dow Jones Industrial Average (DJIA) and the S&P 500 Index (SPX) gaining about 2% for the week.  The NASDAQ Composite Index (COMP) was up nearly 3%.  The averages all gapped higher on Monday morning and never looked back.  They also gapped higher on Wednesday and Friday morning and ended Friday near their highs of the week.  Many international equity markets also rang up gains of 2% to 3% last week.

The last couple weeks of rallying have lifted COMP and SPX to the point where they’re now likely to be pulled higher by their proximity to their next big round numbers.  COMP ended the week near 7939, less than 1% below the 8,000 level.  SPX finished near 2893, just a skoosh below the 2900 level.  Many traders believe that those big number levels act as magnets and would expect those levels to be reached now that we’re in the neighborhood.

News from and about China played a big part in the global stock market gains last week.  Early Monday, the Caixin-Markit report revealed that manufacturing in China increased in March for the first time in four months and China’s manufacturing PMI rose to a six-month high.  Stock markets around the world rallied steeply on the news.  The fears of a global economic slowdown, which weighed on markets late last year, suddenly turned to hope that China’s economy could help to pull global growth out of its funk.  Later in the week, reports that trade talks were progressing nicely and that a resolution of the U.S./China trade war was likely, contributed to stocks gapping higher on Wednesday and Friday.

The Basic Materials sector led the broad sectors with a gain of just over 4% for the week.  Three other sectors, Communication Services, Consumer Discretionary and Financials, had gains of just over 3%.  Among the top performing subsectors, Semiconductor stocks chipped in nearly a 6% gain and two recently weak groups, Bank stocks and Oil Services stocks, saw their groups gain more than 4% for the week.

Stocks in the Oil Services group have been in dire need of a little TLC.  One measure for the group, the PHLX Oil Services Index, skidded more than 75% in the last 4 ½ years, from its summer of 2014 high to its low in December of last year.  The group gushed higher in the first four weeks of this year, gaining more than 25%.  Unfortunately, that index eased lower over the next eight weeks while the broad market continued higher.  Gains over the last couple weeks pumped the index back up to near its high of the year.  It’s still a bit too early to declare that the group is out of the dog house, but it could be fun to watch and see if the group can rig up additional progress in the coming months.

One key take-away from this week’s trading might be how COMP and SPX perform if, and when, they reach those big number levels.  If SPX can punch through 2900 for more than a few hours and by more than a few points, then it’s likely to make a run at the old highs near 2940 very soon.  If COMP and SPX fall short of or are rejected at those big number levels, then we could see several weeks of backing and filling before the next attempt at those big numbers.

A second key to the market’s near-term health might be the performance or lack thereof in the Financial sector and in small-cap stocks.  Both the S&P Financials Sector Index and the Russell 2000 Index (RUT) of small-cap stocks had nice gains last week, but still have net losses for the past five weeks.  Both have failed to climb back to the area of their winter rebound highs and both ended last week right at their 200-day moving averages.  It should be interesting to see in the coming weeks whether they can clear their 200-day MAs and rally beyond their March highs and help the overall market work back to its record levels.

The overall gains year-to-date, and the positive momentum they have generated, have put the market in a position where short-term pullbacks are unlikely to do any serious damage to the uptrend.  The bad news is that means that any danger levels for the indices are at much lower levels.  SPX ended last week near 2893; that index would need to decline into 2780s before it would be likely to do any technical damage.  Beyond that, I suspect the 2720 level, about 6% below the current index level, would be the critical area.  2720 would put SPX below not only its 200-day moving average (currently 2759ish) but also below the March retracement low near 2722.

No surprises are expected in the release of the Fed meeting minutes midweek, but these events are usually good for a spurt of volatility.  On Wednesday and Thursday, the CPI and PPI updates will be closely watched for any indication that inflationary pressures are building.  The new Earnings Season officially begins late this week when several big banks will report their first quarter results.

Date Report Previous Consensus
Monday 4/8/2019 Factory Orders, M/M +0.1%  -0.5%
Tuesday 4/9/2019 NFIB Small Business Optimism Index 101.7  102.0
JOLTS Job Openings 7.581mm  7.565mm
Wednesday 4/10/2019 Consumer Price Index, M/M +0.2%  +0.3%
CPI, less Food & Energy, M/M +0.1%  +0.2%
FOMC Meeting Minutes
Thursday 4/11/2019 Initial Unemployment Claims 202K 211K
Producer Price Index, M/M +0.1% +0.3%
PPI, less Food & Energy, M/M +0.1% +0.2%
Friday 4/12/2019 Import and Export Prices, Imports, M/M +0.6%  +0.4%
Import and Export Prices, Exports, M/M +0.6%  +0.3%
Consumer Sentiment 98.4  98.2

 

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