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By Pete Biebel, Senior Vice President

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It was a pretty good week for the markets.  Just about everything chalked up a gain for the week.  Precious metals streaked higher but gave back a bit of their advance on Friday.  All eleven U.S. equity sectors were in the plus column for the week.  Most international markets, both developed and emerging, extended their recent rallies.  Two of the top gainers on the week were sectors that had been at trailing the rest of the field: The Russell 2000 Index of small-cap stocks (RUT) climbed just over 6% and an index of MLP and Infrastructure companies added 6.3%.

As the market averages raced higher over the past several months, it was clear that just a few sectors were continually leading the pack.  The Communication Services, Consumer Discretionary and Technology sectors, whose members included all of the mega-cap tech stocks, were handily outpacing other, more lethargic groups.  That changed last week with RUT and MLPs elbowing their way into the lead.  The hares weren’t the worst performers on the week, but their pace clearly slowed relative to many of those lagging sectors.  The three sectors above were just mid-pack among the U.S. equity sectors.

The Dow Jones Industrial Average (DJIA) was the best of the broad indices, up 3.8% for the week.  The NASDAQ Composite Index (COMP) and the S&P 500 Index (SPX) each gained about 2.5%.  COMP came out of the blocks with a healthy gain on Monday, up 1.5%, versus gains of 0.9% and 0.7% for DJIA and SPX.  COMP was best by a wide margin again on Thursday when it rallied 1% while DJIA and SPX gained less than 0.7%.  It’s worth noting that both the NYSE and the NASDAQ had negative advance/decline ratios that day.

Friday was a different story; COMP, with a comfortable lead, backed off its pace and ended the week with a 97-point loss, while DJIA gained about 50 points.  The broad averages were in the red most of the session but strong afternoon rallies by several of the large financial companies in the Dow helped to lift DJIA to its closing gain.  One symptom of the day’s relative weakness in COMP was that neither the Technology sector nor the NYSE FANG+ Index were able to climb above their Thursday highs on Friday.

The two U.S. equity sectors with the largest gains last week are sectors that had been bringing up the rear.  The Industrials sector charged ahead a bit more than 5% for the week.  Several airlines and transportation companies helped to drag the group higher.  The Financials sector gained a bit more than 3.5%.  Fourteen stocks in that sector had gains of more than 5% for the week, including two stocks that were among the group that contributed to the strong perfomance in DJIA Friday afternoon.

How those sectors behave over the next week or two could tell us a lot about how the overall market is likely to trend.  The S&P Industrials Sector Index poked above its 200-day moving average last week for the first time since early-June.  Friday’s close left the index about 2% below its June recovery high.  If the sector can climb above that old high soon, it would be a good omen for the overalll market.  The S&P Fuinancials Sector Index has been trending higher since its late-June pullback held at its 50-day moving average.  That index is still about 4% below its 200-day moving average and about 8% below its early-June high.  It’s wide-open spaces between Friday’s close and the 200-day, so, here again, a follow-through rally of 3 % to 4% would be a good omen.

One surprise that I wrote about last week was the big gain in the Real Estate sector in the prior week.  It was the second-best U.S. equity sector that week with a 4.2% gain.  I was suspicious of the sudden improvement and wrote, “The sector is going to need help from the overall market if it’s going to see any significant follow-through on last week’s gains, and that doesn’t seem very likely.”  Last week, Real Estate was the poorest of the U.S. equity sectors with a mere 0.66% gain.

As mentioned above, precious metals continued their impressive run.  Nearby gold futures gained another 2.35% net for the week and that was after losing about 2% from Thursday’s high to Friday’s close.  Silver ended the week with a whopping 15.9% gain despite dropping about 5% from Thursday’s high.  Silver is now up more than 58% year-to-date.  A weaker U.S. Dollar and lower interest rates were tailwinds for the metals early in the week, but when those trends reversed late in the week, the rally in the metals did as well.  Both gold and silver have had a great run, but they’re probably both due for a little timeout.

Upward momentum in the averages is fading, but it seems that any money coming out of the tech stocks is going into some of the lagging sectors.  The market is still awash in liquidity and that seems unlikely to change anytime soon.  One wildcard is the next fiscal stimulus package.  The market has no doubt that some package will be approved in another week or two and seems to be expecting something in the $1.5 trillion neighborhood.

Last week’s gain lifted SPX to about 3351.  It ended Friday near its high of the day and its high of the week.  That, again, is its highest weekly close since February, and a just a bit more than 1% below the February intraday all-time high.  The gain was also enough for SPX to close the gap left on the breakdown in March, which seemed to be a reasonable near-term target.  The critical level to watch for the next week or two is 3200.

Last week I wrote that the NASDAQ 100 Index, NDX, might be a good short-term indicator.  That index has repeatedly found support at its 20-day moving average while it has stair-stepped higher over the past four months.  NDX easily held above that average last week, and even with Friday’s loss, ended the week about 3% above the 20-day.  That leaves plenty of breathing room, but with the relative performance of the mega-cap tech stocks wavering, we should be alert for any significant break of that level.

This week brings a long list of economic reports though fewer earnings announcements than in recent weeks.  The economic data on Thursday and Friday morning seems to have the best potential to roil the markets.  The earnings reports include relatively few big names.  Traders again will be focused on the negotiations in Washington D.C. to see if Congress is able to make any progress on a new stimulus package.

Date Report Previous Consensus
Monday 8/10/2020 JOLTS Job Openings, June 5.397mm 5.288mm
Tuesday 8/11/2020 NFIB Small Business Optimism Index, July 100.6 100.0
  Producer Price Index – Final Demand, July, M/M -0.2% +0.3%
  PPI – FD less Food & Energy, July, M/M -0.3% +0.1%
Wednesday 8/12/2020 Consumer Price Index, July, M/M +0.6% +0.3%
  CPI less Food & Energy, July, M/M +0.3% +0.2%
Thursday 8/13/2020 Initial Jobless Claims 1,186K 1,160K
  Import & Export Prices, Imports, July, M/M +1.4% +0.6%
  Import & Export Prices, Exports, July, M/M +1.4% +0.3%
Friday 8/14/2020 Retail Sales, July, M/M +7.5% +1.8%
  Retail Sales less Autos & Gas, July, M/M +6.7% +1.0%
  Non-Farm Productivity, Q/Q, SAAR -0.9% +1.0%
  Unit Labor Costs, Q/Q, SAAR +5.1% +5.3%
  Industrial Production, Production, July, M/M +5.4% +3.0%
  Industrial Production, Manufacturing, July, M/M +7.2% +3.0%
  Business Inventories, June, M/M -2.3% -1.2%
  Consumer Sentiment, August 72.5 72.1


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August 10, 2020 |