Stocks Pause as Earnings Pass and Inflation Rises


Stocks just paused as a blistering earnings season nears its conclusion.

The S&P 500 slid 0.4 percent between Friday, February 2, and Friday, February 9. It was only the second decline in the last 16 weeks, according to TradeStation data.

Technology led to the downside as investors sold large growth names like Microsoft (MSFT), Apple (AAPL) and Broadcom (AVGO). The sector faces a potentially big test tomorrow afternoon, when Nvidia (NVDA) reports fourth-quarter results. The designer of Artificial Intelligence (AI) chips is the S&P 500’s top performer this year, having passed Alphabet (GOOGL) and (AMZN) in market capitalization.

Last week also had bad news on inflation, with the consumer price index and producer price index both rising more than expected in January. Services like rent, insurance and healthcare drove the increases, potentially delaying interest-rate cuts by the Federal Reserve. Energy was the main item getting cheaper, which may create risks if crude oil bounces.

Nvidia (NVDA), daily chart, with 50-day moving average. Notice implied volatility rising before quarterly results.

Bond yields jumped to their highest level since the beginning of December in response.

Retail sales also missed estimates for the first time in seven months and initial jobless claims were lower than expected.

Still, investors are reacting more positively to results than normal. FactSet reported that companies beating estimates have risen more than average this earnings season, while misses have been punished less than average. That’s potentially consistent with a market paying higher valuations in anticipation of double-digit profit growth this year.

Energy Leads

Top Gainers in the S&P 500 Last Week
Diamondback Energy (FANG)+18%
Trimble Navigation (TRMB)+15%
Viatris (VTRS)+12%
DaVita (DVA)+11%
Uber Technologies (UBER)+11%
Source: TradeStation Data

Energy was the best-performing sector last week as crude-oil futures continued their rebound from $70. Diamondback Energy (FANG) helped spur the gains by acquiring a privately held company that will make it the No. 3 producer in the Permian Basin.

Chinese Internet stocks, biotechnology, banks and solar energy also gained. All those groups have lagged in recent months.

Gold miners and homebuilders fell last week as interest rates increased.

Uber Technologies (UBER) was another big mover after projecting compounded annual growth rates of 30-40 percent over the next three years. In addition, the ride-sharing company plans to buy back $7 billion of its stock. Dialysis company DaVita (DVA) also beat estimates and issued strong guidance.

Akamai Technologies (AKAM) was the biggest decliner in the S&P 500 last week after results missed estimates.

Super Micro Computers (SMCI), with daily options volume and Friday’s bearish engulfing day.

Last week also saw dramatic swings in Super Micro Computer (SMCI), which had more than doubled after preannouncing strong results on January 18. The stock jumped another 46 percent through Friday morning before reversing sharply and ending the week up 8.5 percent. Options activity increased dramatically during the move, nearing 1 million contracts at the end of last week.

Charting the Market

While stocks have steadily advanced since late October, some investors may see potential risks in last week’s price action.

Top Decliners in the S&P 500 Last Week
Akamai Technologies (AKAM)-15%
Adobe (ADBE)-13%
West Pharmaceutical Services (WST)-12%
Biogen (BIIB)-9.1%
MGM Resorts (MGM)-9%
Source: TradeStation Data

First, the S&P 500 fell sharply after Tuesday’s inflation report. It held a rising trendline and its low from the previous week. However it failed to progress to a new high. That differs from price action earlier in the month.

Second, the index remained below the previous week’s high around 5030. Will it become near-term resistance? Will traders look for support at the recent weekly low around 4918?

Third, the nine-day rate of change oscillator has made lower highs as the broader market advanced. That could be viewed as “bearish divergence.”

S&P 500, daily chart, with select patterns and indicators.

The Week Ahead

This week could hinge on Wednesday afternoon, which brings minutes from the last Fed meeting and results from NVDA. Some retailers and housing stocks also report earnings.

Today’s items include results from Home Depot (HD), Walmart (WMT) and Palo Alto Networks (PANW).

Fed minutes are due at 2 p.m. ET tomorrow. NVDA reports earnings after the closing bell, along with Rivian Automotive (RIVN) and Etsy (ETSY).

Thursday brings initial jobless claims, existing home sales and crude oil inventories.

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