Why Last Week Was More Interesting than It Looked


Last week was a lot more interesting than it looked.

Sure, the S&P 500 might have barely moved between Friday, May 11, and Friday, May 18. But there were gaping differences beneath the surface as money shifted between sectors. Interest rates hit new multiyear highs, as well.

In a nutshell, investors seemed to be rotating into cyclical companies that benefit from a strong economy. That lifted small-capsenergy, materials, industrials and retailers. Bond yields also tend to rise when growth accelerates.

Technology, by far the largest sector in the market, slid more than 1 percent amid weak guidance from Cisco Systems (CSCO) and Applied Materials (AMAT). Interest-rate sensitive companies like utilities and real-estate investment trusts cratered 3 percent. The stronger dollar, combined with political uncertainties, also weighed on emerging markets.

Something else interesting might have happened on the charts after the S&P 500 managed to remain above its 50-day moving average an eighth consecutive session. That’s it’s longest time over the potentially key level since February’s gut-wrenching selloff.

S&P 500 index. Circle shows move above 50-day moving average.

The stampede into energy continued as the sector led the market with a 2 percent gain. Within energy higher-beta groups like oil-field servicers, ocean drillers and wildcatters rose even more. (Click here for our special report.)

Economic news was pretty quiet but confirmed the bigger narrative. Readings of industrial production and retail sales for April nudged higher. More recent data from the New York and Philadelphia branches of the Federal Reserve showed a spike in manufacturing orders this month.

Macy’s (M) leapt 15 percent to a new 52-week high after after crushing estimates and raising guidance. That made it the best-performing member of the S&P 500 for the week. Symantec (SYMC) was close behind, rebounding 14 percent as worries about its accounting faded.

Campbell Soup (CPB) found itself on the other end of the rankings, down 16 percent, after higher commodity costs and weak demand forced management to slash its forecast. (Click here for our special report on the meltdown in consumer staples.) Viacom (VIAB) and AMAT vied for second-worst in the S&P 500, down about 9 percent each.

This week’s agenda is relatively quiet. Tomorrow brings earnings from retailers Kohl’s (KSS) and TJX (TJX). Wednesday has Target (TGT), Lowe’s (LOW), crude-oil inventories, new home sales and minutes from the last Federal Reserve meeting.

Initial jobless claims are due Thursday, along with existing home sales. Durable-goods orders round out the week Friday morning, followed by the three-day Memorial Day weekend.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.