The Nasdaq Just Had the Worst Week In a Decade, By this Measure

The Nasdaq Just Had the Worst Week In a Decade, By this Measure

Stocks rose again last week, flirting with post-pandemic highs, even as major technology names declined.

The S&P 500 rose 1.25 percent between Friday, July 10, and Friday, July 17. It was the index’s third straight weekly gain, with more than four-fifths of its member stocks advancing.

But the Nasdaq-100 was a different story. It fell 1.8 percent, led by selling in big technology stocks like (AMZN), Netflix (NFLX) and Microsoft (MSFT). It was the index’s worst week since mid-March on an absolute basis. Relative to the S&P 500, the Nasdaq had its biggest decline since May 2009 (3 percentage points).

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

The economic news was mixed as coronavirus cases soared to new records. Retail sales for June and forward-looking industrial reports from New York and Philadelphia beat estimates. However jobless claims remained persistently high and consumer sentiment darkened.

“Declines are more likely in the months ahead,” economists at the University of Michigan wrote in the consumer-sentiment report. Without effective policy response by Washington “another plunge in confidence and a longer recession is likely to occur.”

Chinese GDP Beats Estimates

The recovery has been stronger overseas. China reported 3.2 percent gain in gross domestic product for the second quarter, beating the 2.5 percent forecast. Germany said its industrial sector had bottomed out. The European Central Bank also kept its monetary stimulus unchanged (instead of boosting it).

Biggest Gainers in S&P 500 Last Week
Hanesbrands (HBI)+23%
Waters (WAT)+20%
Align Technology (ALGN)+18%
Henry Schein (HSIC)+17%
L Brands (LB)+16%

Those forces, combined with a spreading pandemic in the U.S., have drawn capital to foreign stocks and away from the dollar. This trend could last several months because the greenback is falling from long-term highs.

Last week also saw breakouts in solar-energy stocks and health care. Solar is riding a wave of demand for “ESG” stocks, plus a merger the previous week. Health care benefited from rallies in medical-device companies like Waters (WAT), Align Technology (ALGN) and Henry Schein (HSIC). Biotechnology kept running.

S&P 500, daily chart, with 2019's close and the 200-day moving average.
S&P 500, daily chart, with 2019’s close and the 200-day moving average.

Resistance on the S&P 500?

The S&P 500 just had its highest weekly close since the coronavirus selloff began. However the index failed to break above its June 8 peak around 3233.

That level roughly matches the line between a positive and negative return for 2020. It was also a low in early February, which could mean old support has become new resistance. That can be a potentially bearish pattern.

The big question now facing investors is whether the index can reach new highs with earnings expected to shrink more than 40 percent. Most of the S&P 500’s member stocks announce results in the next three weeks.

Another potential problem is technology and the Nasdaq. They’ve surged in recent weeks as coronavirus spurred investments in software and cloud computing. But if investors continue to take profits, it could remove a key leadership group.

Netflix Tumbles, Align Rips

NFLX was one of the biggest movers last week. Traders flocked to the streaming-video stock after the coronavirus lockdowns boosted membership. But it failed to hold early gains on Monday and fell on a UBS downgrade the next session. It then proceeded to warn about slowing growth on Thursday afternoon and dropped on Friday.

Biggest Decliners in S&P 500 Last Week
Fortinet (FTNT)-11%
Netflix (NFLX)-10% (AMZN)-7.4%
Adobe (ADBE)-7.2%
Norwegian Cruise Line (NCLH)-6.9%

Most of the big financials like JPMorgan Chase (JPM), Bank of America (BAC) and Goldman Sachs (GS) reported last week. Wall Street firms benefited from a surge in trading after the market crashed. Traditional banks are struggling with the risk of more loans defaulting and low interest rates.

This week brings a lot more earnings, led by Tesla (TSLA) and Microsoft (MSFT). There aren’t many important economic reports. Here are some key items:

  • This morning: Halliburton (HAL)
  • Tomorrow morning: Coca-Cola (KO)
  • Tomorrow afternoon: United Airlines (UAL), Snap (SNAP), Texas Instruments (TXN)
  • Wednesday morning: Biogen (BIIB)
  • Wednesday afternoon: Microsoft (MSFT), Tesla (TSLA)
  • Thursday morning: Initial jobless claims, Twitter (TWTR), Southwest Airlines (LUV), Freeport-McMoRan (FCX)
  • Thursday afternoon: Intel (INTC), Skyworks Solutions (SWKS)
  • Friday morning: American Express (AXP), Verizon Communications (VZ)
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