Stock Bulls Rest Amid Political, Economic Worries

Stock Bulls Pause Amid Political, Economic Worries

Stocks drifted last week as investors started worrying about politics and the global economy.

The S&P 500 rose less than 0.1 percent between Friday, February 1, and Friday, February 8. It was only the sixth and smallest advance in the last seven weeks, following the index’s sharp rebound in January. The index also had its narrowest weekly trading range
(just 57 points) since late September.

While U.S. growth has seemed bullet-proof for the last couple of years, the most recent headlines gave traders a reason to think otherwise.

Initial jobless claims, one of the most reliable indicators of the economy’s strength, were higher than forecast for the second straight week. The Institute for Supply Management’s service index fell more than expected to a new six-month low. Officials in Germany, England and Australia cut their growth estimates.

You also had global risk as China and the U.S. remain mired in a trade war, while Brexit kept Europe bouncing from one uncertainty to another.

Quarterly results were mixed as high-profile technology names like Alphabet (GOOGL) and Twitter (TWTR) dropped on future spending plans. Meanwhile, select consumer names rallied on signs of rebuilding their businesses.

Mattel (MAT) is a case in the point. The toymaker surprised analysts by actually making money in the fourth quarter, thanks to cost cuts and revamped Barbie dolls. That landed MAT at the top of the S&P 500’s rankings last week, up 25 percent.

Coty (COTY), the owner of Covergirl makeup, rallied almost as much after better-than-expected earnings forced short sellers to cover bearish bets. Ditto for underwear maker Hanesbrands (HBI), the third-biggest gainer on the week.

Anadarko Petroleum (APC), Tapestry (TPR) and Goodyear-Tire (GT) had the sharpest declines. All three dropped more than 11 percent on disappointing quarterly results.

The best-performing areas of the market last week were software, banks and semiconductors. Utilities also gained as interest rates fell. Energy, metals and biotechnology fared the worst.

S&P 500 with 100- and 200-day moving averages.

The S&P 500 is now back to its highest level since early December. It’s also challenging its 100-day moving average for the first time since volatility struck the market four months ago. Will investors keep buying this week or wait for more clarity on the big geopolitical issues?

There are also more company results, even though we’re past the midpoint of earnings season. Aurora Cannabis (ACB) leads the charge this morning. Tomorrow features high-flying cloud stocks Twilio (TWLO) and Shopify (SHOP), along with struggling video-game maker Activision Blizzard (ATVI).

Wednesday features speeches by Federal Reserve policymakers Raphael Bostic and Loretta Mester, along with crude-oil inventories, inflation and Cisco Systems (CSCO) results.

Thursday brings initial jobless claims, producer prices. Nvidia (NVDA), Coca Cola (KO) and Applied Materials (AMAT) lead the earnings roster.

The week concludes Friday with Deere (DE), PepsiCo (PEP), retail sales and consumer sentiment. It’s also the deadline for negotiations between Congress and the White House to prevent another government shutdown.

The following week is shortened because markets are closed on February 18 for Presidents’ Day.

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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on 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 apprised 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.