Nasdaq Leads a Rebound as Strong Data Keeps Sentiment Bullish

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Nasdaq Leads a Rebound as Strong Data Keeps Sentiment Bullish

Stocks rebounded sharply last week as strong economic news gave investors a reason to stay bullish.

The S&P 500 rose 3.2 percent between Friday, January 31, and Friday, February 7. It was the biggest weekly gain since early June. Technology stocks and members of the Nasdaq-100 led the rally by a wide margin.

The bounce followed a followed a sharp pullback the previous week as investors worried China’s coronavirus would slow the global economy. Beijing responded quickly by injecting liquidity into its financial system, calming sentiment.

Then strong U.S. economic data started hitting. The Institute for Supply Management’s manufacturing index unexpectedly rose to its highest level since July. Two days later, its service-sector index beat forecasts.

S&P 500 daily chart with 50-day moving average.
S&P 500 daily chart with 50-day moving average.

Jobs data also surprised to the upside:

  • ADP reported that private-sector payrolls rose by 291,000 in January. It was the biggest gain in more than four years, and almost twice the projected amount.
  • Weekly jobless claims fell more than expected to 202,000, the lowest reading since April.
  • The Labor Department’s non-farm payrolls report showed growth of 225,000, versus the 160,000 forecast by economists.

Unseasonably warm weather in January helped boost construction jobs. But the number of people seeking work also increased as Americans reentered the workforce. All told, it shows more evidence of the U.S. economy’s broad strength.

Nasdaq Leads by Huge Margin

The Nasdaq-100 rose 4.6 percent last week, its biggest gain compared to the S&P 500 since October 2018. Several stories bolstered the index and broader technology sector.

First, Tesla (TSLA) continued its historic rally. Even though it relinquished more than half its gains after Tuesday, Elon Musk’s electric-car maker still rose 15 percent.

Next, smaller and newer technology stocks like Twitter (TWTR), Uber Technologies (UBER) and Pinterest (PINS) shot higher on strong earnings. TWTR made big progress on engaging and monetizing its users. UBER showed signs of turning its business around. PINS had strong growth across the board.

Third, Amazon.com (AMZN) continued its advance to new record highs after a strong fourth-quarter earnings report. It ended the week firmly above $2,000 and over $1 trillion of market capitalization.

Nasdaq-100 weekly chart with relative strength vs. S&P 500.
Nasdaq-100 weekly chart with relative strength vs. S&P 500.

Fourth, biotechnology stocks had their best week in a year. Gilead Sciences (GILD) and Regeneron Pharmacueticals (REGN) rose on hopes of a coronavirus cure. Biogen (BIIB) also spiked after winning a court ruling.

Finally, solar-energy stocks continued to surge, with the Invesco Solar Energy ETF (TAN) reaching its highest level since July 2015.

Altcoins Advance

Cryptocurrencies also rose further, led by “altcoins” like Ethereum (ETHUSD) and Bitcoin Cash (BCHUSD). That kind of widening strength is usually associated with new buyers putting money to work. It’s similar to breadth in the stock market.

But then you have Ford Motor (F), which had its biggest weekly drop in two years. Weak earnings, production problems and a shift of investor interest toward TSLA seem to be weighing on the traditional automaker. It’s also become one of the most active symbols on TradeStation as volatility increases.

Last week’s rebound sent the the S&P 500, Nasdaq-100 and Dow Jones Industrial Average back to new record highs. Safe-haven utilities were the only major sector to fall. Energy stocks eked out a small bounce, but remain near long-term lows. The glut of oil and natural gas remains a problem for this sector.

Tesla (TSLA) daily chart with 50- and 200-day moving averages.
Tesla (TSLA) daily chart with 50- and 200-day moving averages.

Fed and Tech Earnings This Week

This week features more big technology earnings and a handful of economic reports.

Things start tomorrow morning when Federal Reserve Chairman Jerome Powell testifies before the House Financial Services Committee. Lyft (LYFT) issues results after the closing bell.

CVS Health (CVS) and Shopify (SHOP) report before Wednesday’s opening bell. Oil inventories are due in the morning. Big tech names including Cisco Systems (CSCO), Applied Materials (AMAT) and NetApp (NTAP) follow in the postmarket.

Jobless claims and Alibaba (BABA) are the big items Thursday morning. Nvidia (NVDA) results are the big afternoon event.

Retail sales, industrial production and consumer sentiment wrap things up Friday morning.

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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.