Stocks Try to Rebound on Strong Earnings as Yields Surge Back to Pre-Pandemic Levels

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Stocks bounced amid some positive news last week, but remain under pressure as interest rates increase.

The S&P 500 rose 1.5 percent between Friday, January 28, and Friday, February 4. It was the second straight gain following a sharp decline in January. Other big indexes like the Nasdaq-100 and Dow Jones Industrial Average advanced more than 1 percent, as well.

It was a busy week for news. Key companies like Amazon.com (AMZN), Advanced Micro Devices (AMD) and Exxon Mobil (XOM) reported strong quarterly results. Employment numbers beat estimates by a wide margin, while industrial indexes came in stronger than expected. Crude oil also broke above $90 for the first time in over seven years as inventories plunged to a new pandemic low.

While investors nervously watched the Federal Reserve in January, attention shifted across the Atlantic last week. The Bank of England raised interest rates by 25 basis points, with policymakers coming within a single vote of hiking by 50 basis points. European Central Bank President Christine Lagarde moved in a similar direction by emphasizing inflation risks. She also omitted an earlier comment that rate hikes were unlikely this year.

Biggest Gainers in the S&P 500 Last Week
DXC Technology (DXC)+21%
Xilinx (XLNX)+17%
Advanced Micro Devices (AMD)+17%
Enphase Energy (ENPH)+14%
United Parcel Service (UPS)+14%
Source: TradeStation Data

Those events helped push the 10-year Treasury yield above 1.9 percent for the first time since December 2019. It’s perhaps the market’s clearest sign of things returning to normal after almost two years of crisis. Interest rates may remain in focus with coronavirus infections sliding and key inflation data coming this Thursday.

Energy Leads Again

Oil and gas stocks led again last week. XOM’s strong quarterly report helped lift the sector. It also benefited from OPEC+ refusing accelerate production increases.

Financials were the second-best performing sector as investors priced in higher interest rates and a stronger economy.

Semiconductors gained after companies like AMD and Qualcomm (QCOM) announced strong quarterly results. Xilinx (XLNX) followed AMD higher because it’s being acquired by the larger firm.

Travel stocks, agricultural companies and industrial metals also climbed.

Housing stocks fared the worst amid the rising interest rates.

UPS and AMZN jumped after beating profit forecasts. Meta Platforms (FB) and PayPal (PYPL) fell on weak results. See last week’s earnings recap for more.

S&P 500, daily chart, showing key technical events.

Charting the Market

Last week’s bounce brought the S&P 500 back to its January 10 low of 4582, but prices failed to hold.

The high occurred near the 100-day moving average, which provided support several times in the previous year. That could make some traders think that old support has become new resistance.

Technical analysts may focus on the new range between the January low around 4223 and last week’s high under 4600.

The Week Ahead

This week’s agenda is less active than last week. However there are still some important earnings and economic events.

Today is quiet. Pfizer (PFE), BP (BP), Lyft (LFT) and Peloton (PTON) announce quarterly results tomorrow. PTON could also be in the news after The Wall Street Journal reported Amazon.com (AMZN) was considering a bid for the exercise company.

Biggest Decliners in the S&P 500 Last Week
PayPal (PYPL)+21%
Meta Platforms (FB)+17%
Clorox (CLX)+17%
CH Robinson Worldwide (CHRW)+14%
Xylem (XYL)+14%
Source: TradeStation Data

Wednesday has crude-oil inventories, plus speeches from Fed policymakers Michelle Bowman and Loretta Mester. CVS Health (CVS), MGM Resorts (MGM) and Walt Disney (DIS) are some of the big earnings.

The consumer-price index at 8:30 a.m. ET on Thursday could be a big event because of the current focus on inflation. Initial jobless claims are also due, along with results from PepsiCo (PEP), Coca-Cola (KO) and Twitter (TWTR).

Consumer sentiment is due on Friday.

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