Stocks Bounce as Investors Focus on Stronger Economic Growth

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Stocks are bouncing at potential support as investors focus on stronger global growth.

The S&P 500 rose 1.9 percent between Friday, February 24, and Friday, March 3. It was the index’s first gain in the last four weeks. Cyclical sectors like materials and industrials led the bounce, while safe havens continued to lag.

There was no clear trigger for the rally, but a few forces seemed to be at work. First, Treasury yields retreated after six weeks of steady gains. Second, bullish news lifted technology stocks like Salesforce.com (CRM) and Advanced Micro Devices (AMD). Third, strong data from China seemed to confirm its economy is finally recovering.

Biggest Gainers in the S&P 500 Last Week
First Solar (FSLR)+30%
Salesforce.com (CRM)+15%
Steel Dynamics (STLD)+15%
Dentsply Sirona (XRAY)+13%
Illumina (ILMN)+13%
Source: TradeStation data

“We’re entering what I think’s a very strong seasonal period,” Fundstrat analyst Tom Lee told CNBC on Friday, predicting a 7 percent rally by the end of April. “I think bond yields and volatility are going to fall.” He added that investors should watch this Friday’s jobs report for confirmation of the change in sentiment.

Cyclicals Jump

Several kinds of stocks rallied last week. First, China’s manufacturing expanded at the quickest pace in more than a decade. That lifted economically sensitive companies including:

  • Basic metals like Steel Dynamics (STLD), Nucor (NUE) and Freeport McMoRan (FCX)
  • Industrials like Caterpillar (CAT) and Boeing (BA)
  • Casino operators like Caesars Entertainment (CZR) and Wynn Resorts (WYNN)
  • Chinese companies like Melco Resorts & Entertainment (MLCO) and Baidu (BIDU)
  • Energy stocks climbed on expectations of increased Chinese demand

Technology also advanced after CRM reported strong quarterly results and increased its stock buyback. AMD also bounced at support after CNBC reported activist investor Dan Loeb had taken a position in the semiconductor company.

Safe havens like utilities and consumer staples, the worst performers this year, continued to fall last week.

S&P 500, daily chart, with select technical signals. Notice the “golden cross” of the 50-day moving average above the 200-day MA.

Charting the Market

The S&P 500 hit a six-week low on Thursday morning before reversing higher. The resulting “outside candle” is a potentially bullish reversal pattern.

Next, the bounce occurred at the 200-day moving average and above the falling trendline from 2022. Both of those events may suggest 2022’s bearish trend has ended.

At least two other charts could give positive signals to the broader market. First, Cboe’s volatility index (VIX) also fell back under 20 percent. That’s a big change from last year when inflation worries depressed stocks and kept the VIX above 20.

Second, the Dow Jones Transportation Average remained well above its 50- and 200-day moving MA. Some followers of “Dow theory” may view that strength in transports as a bullish sign for the broader market.

The Week Ahead

This week’s big events are Jerome Powell’s testimony in Congress on Tuesday and non-farm payrolls on Friday. Both could have a big impact on interest rates and expectations of future monetary policy.

Today is relatively quiet. Federal Reserve Chairman Powell begins speaking at 10 a.m. ET tomorrow, with more comments the next day.

Biggest Decliners in the S&P 500 Last Week
Dish Network (DISH)-15%
United Health (UHS)-13%
Lumen Technologies (LUMN)-11%
Hormel (HRL)-9.9%
Bath & Body Works (BBWI)-6.7%
Source: TradeStation data

Wednesday brings ADP’s private-sector payrolls report and crude-oil inventories.

Initial jobless claims, plus earnings from Gap (GPS) and Ulta Salon (ULTA), are the main items on Thursday.

Friday’s big event is the monthly employment report for February. Investors are likely to monitor wages for clues on inflation. They’ll also be looking for evidence that January’s unusually large increase was either an anomaly or the start of a new trend.

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