Stocks Hold Gains as Backdrop Continues to Improve

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Stocks held their ground last week amid a stream of positive news.

The S&P 500 slipped 0.2 percent in the holiday-shortened span between Friday, January 18, and Friday, January 25. It was the first negative week in the last five, coming amid the sharpest rally in several years.

Good earnings, strong economic data, calming political developments and an apparent brightening of investor sentiment all seem to be at work.

Semiconductors led the charge as strong earnings raised hopes that the industry’s mini-slowdown is near an end. Initial jobless claims, a frequent gauge of the labor market, fell more than expected to a new 49-year low under 200,000.

Headlines were less positive overseas after Chinese growth slowed and European policymakers trembled about Brexit. Interestingly, investors completely ignored those potential problems and flocked to global assets.

Just look at the greenback. The U.S. dollar index (@DX) ended last week with its biggest drop in a year, while gold futures (@GC) closed at their highest level since mid-June. That helped ETFs tracking China (FXI), South Korea (EWY) and Brazil (EWZ) outperform the domestic S&P 500 by a wide margin.

Aside from semiconductors, solar-energy firms, gold and silver miners and Chinese technology stocks were some of the biggest gainers last week. Energy lagged as crude-oil futures (@CL) chopped at a key level. Consumer staples struggled as investors avoided safe havens.

There was also a surprising flurry of bad news in the health-care space, including analyst downgrades, competition worries and weak guidance.

ResMed (RMD) is a case in point. Usually a boring supplier of medical devices, the company had its biggest drop in almost two decades on Friday after revenue missed and management said it would halt share buybacks. RMD ended the week down 20 percent, making it the worst performing member of the S&P 500. Abbvie (ABBV), Pfizer (PFE), Merck (MRK) and Johnson & Johnson (JNJ) also declined on their own negative stories.

Xilinx (XLNX), on the other hand, was the index’s top gainer. Strong quarterly results lifted the chip maker 18 percent to a new all-time high. Synchrony Financial (SYF) was second best, up 13 percent, after announcing a potentially huge turnaround quarter.

The S&P 500 is back above its 50-day moving average for the first time since volatility swept markets in early last quarter. The index is also pushing against an area where it bounced in October and December. Will the old support continue being resistance?

S&P 500 with resistance zone and 50-day moving average.

The calendar is packed with events as we enter the busiest week of earnings season. There are also a Federal Reserve meeting and key economic reports like monthly payrolls.

Caterpillar (CAT) kicks things off before the opening bell today.

Tomorrow features Apple (AAPL), Advanced Micro Devices (AMD), Amgen (AMGN), EBay (EBAY), Verizon Communications (VZ), PFE and 3M (MMM). Consumer confidence is due as well.

Wednesday’s big names include Facebook (FB), Alibaba (BABA), Microsoft (MSFT), PayPal (PYPL), Qualcomm (QCOM) and McDonald’s (MCD). ADP’s private-sector payrolls report comes out in the morning, followed by the Fed’s interest-rate announcement in the afternoon. A Wall Street Journal report suggested monetary stimulus could last longer than expected last year as the central bank continues its dovish drift.

Two important numbers are also scheduled from the government, but may be delayed because of the recent government shutdown: the preliminary reading on fourth-quarter gross domestic product and crude-oil inventories.

Thursday features jobless claims and European GDP. Amazon.com (AMZN), MasterCard (MA) and General Electric (GE) account for some of the big earnings reports.

Friday brings non-farm payrolls, the Institute for Supply Management’s manufacturing index and consumer sentiment. MRK, Exxon Mobil (XOM) and Chevron (CVX) lead the earnings roster.

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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.