Stocks Break Historic Losing Streak on Positive Earnings and Inflation News

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Stocks exploded higher last week, breaking a historic losing streak, as good news chipped away at a wall of negativity.

The S&P 500 rose 6.6 percent between Friday, May 20, and Friday, May 27 — the biggest gain since November 2020. The rally broke a seven-week losing streak, which was the S&P 500’s longest slide since 2001. (For the Dow Jones Industrial Average, it tied a previous record going back 99 years.)

A combination of good news and seller exhaustion seemed to explain the news. JPMorgan Chase (JPM) said on Monday that it may reach a key profitability goal (17 percent return on tangible common equity) as early as this year. That lifted the biggest U.S. bank by 12 percent. There was also benign inflation news on Friday as the core personal consumptions expenditure (PCE) index slowed and spending shifted toward services, which are less vulnerable to rising prices.

Biggest Gainers in the S&P 500 Last Week
Dollar Tree (DLTR)+29%
Ulta Beauty (ULTA)+24%
Dollar General (DG)+22%
Ross Stores (ROST)+21%
DXC Technology (DXC)+19%
Source: TradeStation Securities

Interest rates and expectations for Federal Reserve tightening eased in response, lessening one of the market’s biggest worries this year.

Even modestly positive news like that can have a big impact given the intensely negative sentiment. A survey by the American Association of Individual Investors showed fewer than one in five poll respondents expect higher stock prices in the next six months, while over half see further downside. Opinions like that can be contrary indicators, revealing large amounts of uninvested cash on the sidelines.

Nvidia Reverses

Last week’s turning point came on Wednesday after minutes from the May 4 Fed meeting. While the comments were hawkish, investors were ready for the news and started buying as it hit. Similar to mid-March, it was a case of “selling the rumor and buying the news.” Traders were mostly positioned in a bearish direction expecting a negative headline. Once it was public, the catalyst was gone so prices moved in the opposite direction.

Biggest Decliners in the S&P 500 Last Week
DexCom (DXCM)-10%
Medtronic (MDT)-3.4%
Molina Healthcare (MOH)-1.4%
Kraft Heinz (KHC)-1.4%
AbbVie (ABBV)-0.7%
Source: TradeStation Securities

Nvidia (NVDA) was another case of selling the rumor and buying the news. The semiconductor company, down 50 percent since late November, issued light guidance for the current quarter and said it will slow hiring. The stock fell more than 10 percent in extended trading immediately after the report, but reversed early Thursday and ended the week up 13 percent.

Other companies like Dollar Tree (DLTR), Ulta Beauty (ULTA) and Dollar General (DG) also surged on better-than-expected results. Those retail bounces partially erased major drops by larger players like Walmart (WMT) and Target (TGT) the previous week.

Every Sector Rises

Last week’s advances were unusually broad, with 99 percent of the S&P 500’s member stocks rising. All 11 major sectors had positive returns. Consumer discretionaries led charge after suffering one of its worst drops ever the previous week. Energy stocks, financials and technology also outperformed. (Energy could remain in focus this week as European leaders try to reduce dependence on Russian oil and OPEC meets.)

Industrial metal stocks, one of the top performers earlier in the year, snapped back as the U.S. dollar weakened and China eased coronavirus restrictions.

Precious metals, biotechnology and health care rose the least.

S&P 500, daily chart, showing trendline breakouts and other technical patterns.

Charting the Market

The S&P 500 surged last week after closing above a bearish trendline that began on April 21. The breakout resembled similar moves in mid-October and mid-March.

The index closed near the same 4160 level where it bounced last June and March. That could make some traders watch for old support to become new resistance.

Value hunters may also focus on the Nasdaq-100, which fell 21 percent below its 200-day moving average last week. That was the technology-heavy index’s deepest discount to the long-term average since March 2009, according to TradeStation data.

Nasdaq-100, daily chart, with 200-day moving average.

Payrolls This Week

This week is shortened by Memorial Day but still features some important items. Several regular events shift because of the holiday.

Today’s big events are consumer confidence in the morning. Quarterly results from Salesforce.com’s (CRM) and HP (HPQ) follow in the postmarket.

The Institute for Supply Management’s manufacturing index is due on Wednesday.

Thursday brings an OPEC meeting, ADP’s private-sector payrolls report, initial jobless claims and crude-oil inventories. Lululemon Athletica (LULU) reports earnings in the afternoon.

The Labor Department’s non-farm payrolls report is due Friday morning. The American Society of Clinical Oncology (ASCO) also begins its annual conference, which may impact biotechnology stocks.

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