Stocks Keep Climbing as Confidence Builds

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Stocks keep inching higher as confidence builds.

The S&P 500 rose 0.6 percent between Friday, August 10, and Friday, August 17. It was the seventh positive week in the last eight, and the second-highest weekly close in history.

The big stories are the U.S. economy and corporate financials remaining strong. While many prognosticators doubt the expansion’s staying power, some headlines last week painted a brighter picture. Retail sales beat estimates and the National Retail Federation increased its forecasts for the year.

Leading economic indicators for July were better than expected. Initial jobless claims were lower than feared. Second-quarter productivity jumped. It doesn’t take a starry-eyed optimist to sense that both businesses and consumers are doing well.

The bears might have lost another argument about halfway through the week: “China, U.S. to hold lower-level trade talks in late August,” Reuters declared late Wednesday night. Stocks ripped higher the next session as investors stormed back to large-cap industrials punished by trade-war anxieties.

Hopes of a breakthrough were bolstered Friday when the Wall Street Journal reported Chinese officials will visit Washington this coming Wednesday. Their goal is to prepare a summit between U.S. President Trump and Xi Jinping of China in November. Is there finally light at the end of the tariff tunnel?

Still, beneath the surface there were losers. Energy, for example, got routed as oil inventories swelled and the U.S. dollar advanced. Semiconductors collapsed amid bearish chart patterns and bad headlines from Nvidia (NVDA) and Applied Materials (SMH). Chinese stocks plunged on weak economic data and earnings.

On the other hand, telecoms came to life as CenturyLink (CTL) beat estimates and Dow Jones Indices announced the creation of a new telecom/media sector index next month. Health-care also continued to bask in surprisingly positive second-quarter results.

Nielsen (NLSN) had the biggest gain in the S&P 500 for the week, bouncing 19 percent from a long-term low on hopes of a buyout. Retailer Nordstrom (JWN) followed with a 13 percent gain on strong earnings.

However, Baker Hughes (BHGE) fell 11 percent amid the general selloff in energy. Gold producer Newmont Mining (NEM) was second-worst, down 10 percent, amid the general selloff in metals and materials.

The forward agenda is surprisingly busy for late August, with some high-profile meetings and earnings.

Today, for instance, the Office of the U.S. Trade Representative will begin a week of hearings on Chinese tariffs. However, attention may instead focus on the Chinese delegation two days later.

Tomorrow features earnings from Kohl’s (KSS), TJX (TJX) and Medtronic (MDT).

Wednesday kicks off two days of meetings between Chinese officials and David Malpass, U.S. Undersecretary of Treasury for International Affairs. Lowe’s (LOW) and Target (TGT) also issue quarterly results. Other items include crude-oil inventories, existing-home sales and minutes from the last Federal Reserve meeting.

Speaking of the Fed, policymakers begin their annual three-day gabfest with the bison at Jackson Hole, Wyoming, on Thursday. Initial jobless claims and new-home sales are also due, along with earnings from Gap (GPS) and HP (HPQ).

Friday brings durable-goods orders and Foot Locker (FL) results.

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David Russell is Global Head of Market Strategy at TradeStation. 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.