Nasdaq Leads Stocks to New Highs as ‘Goldilocks’ Returns

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Stocks rebounded last week, led by the Nasdaq-100, as “Goldilocks” conditions return.

The S&P 500 rose 0.7 percent between Friday, November 12, and Friday, November 19. However the big move came from the Nasdaq-100, which gained 2.5 percent as semiconductors and consumer stocks jumped. That planted the Nasdaq at new record highs, while the other index remained below recent peaks.

Strong earnings and economic data, combined with signs of slowing inflation, are creating so-called “Goldilocks” conditions. That’s when growth is strong enough to support equities but not fast enough to spur price increases. Not too hot, not too cold, but “just right.”

Biggest Gainers in the S&P 500 Last Week
Dollar Tree (DLTR)+19%
Moderna (MRNA)+16%
Qualcomm (QCOM)+12%
Home Depot (HD)+10%
Intuit (INTU)+9%
Source: TradeStation Data

First, the economy. Almost every key number last week was positive. Retail sales beat estimates for the third straight month as consumers keep shopping. Regional surveys from the New York and Philadelphia branches of the Federal Reserve showed new orders fueling an industrial rebound. Homebuilder confidence unexpectedly rose to a six-month high thanks to strong buyer demand.

Next, company news. Retailers continued their streak of positive results as companies like Home Depot (HD), Macy’s (M), TJX (TJX) and Lowe’s (LOW) beat estimates. Dollar Tree (DLTR) also jumped after an activist investor revealed a stake in the discount retailer. Moderna (MRNA), which crashed on weak guidance earlier in the month, rebounded after its Covid-19 booster shots were approved or all adults.

Finally, inflation. Price increases have been a major worry as the reopening caused bottlenecks. But an easing chip shortage could boost industrial production, especially for automobiles. Commodities like crude oil and copper also declined. That helped keep a lid on bond yields — even with the Fed tapering asset purchases. The result could be a classic “Goldilocks,” with a strengthening economy as inflationary pressures ease.

Apple Car?

Apple (AAPL) also broke out to new highs last week after Bloomberg reported that the technology giant would unveil a fully autonomous electric car by 2025. AAPL struggled before the news amid supply-chain constraints.

Semiconductor stocks hit new highs after Nvidia (NVDA) reported strong quarterly results. Qualcomm (QCOM) also continued to climb as investors embraced its diversification into newer markets like self-driving cars.

Housing stocks broke out on signs that interest rates may have peaked. They also benefited from HD and LOW reporting strong results.

Energy and financials led to the downside. Energy dipped as crude-oil inventories tightened less than expected and Austria re-imposed coronavirus restrictions. Financials struggled as the dip in longer-term interest rates created the risk of a flatter yield curve.

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

Charting the Market

The S&P 500 ended the week near its previous record high on November 5. The index is also back to a trendline that served as support between March and September.

The Dow Jones Industrial Average, on the other hand, fell 2 percent last week. Weak results at Cisco Systems (CSCO) and worries about Visa’s (V) fees dragged the big index lower.

The Russell 2000, which is more focused on industrials and financials, also dropped.

The Week Ahead

This week is cut short by Thanksgiving on Thursday, but there’s still plenty of news to keep investors active.

Today brings existing home sales and results from Zoom Video Communications (ZM) after the closing bell. President Joe Biden is also expected to announce his pick for Fed chair. Will he stick with Jerome Powell or switch to board member Lael Brainard?

Biggest Decliners in the S&P 500 Last Week
Apache (APA)-12%
Penn National Gaming (PENN)-11%
Norwegian Cruise Lines (NCLH)-11%
Caesars Entertainment (CZR)-11%
Activision Blizzard (ATVI)-10%
Source: TradeStation Data

Tomorrow features quarterly results from Best Buy (BBY), DLTR, Dell Technologies (DELL), Gap (GPS) and HP (HPQ).

Wednesday is busier than usual as Thanksgiving pushes events forward. Revised gross domestic product, initial jobless claims and durable-goods orders are due in the premarket, along with Deere (DE) earnings. New home sales, personal income and spending, consumer sentiment and crude-oil inventories follow later in the morning.

Minutes from the last Fed meeting are due at 2 p.m. ET on Wednesday. Investors may view it as an important event, with clues on the pace of tapering.

Markets are closed Thursday. They open for only a half day (until 1 p.m.) on Friday.

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