Market Insights

Stocks just had their best week of the year as a string of good news erased worries about a recession.

The S&P 500 rose 3.9 percent between Friday, August 9, and Friday, August 16. It was the biggest gain since early November. Major growth stocks like Nvidia (NVDA), Amazon.com (AMZN) and Tesla (TSLA) powered the move.

Three big headlines bolstered confidence in the economy and longer-term conditions:

• The producer price index (PPI) rose slightly less than forecast. The core number was unexpectedly flat as services fell the most in over a year. That helped confirm inflationary pressures are easing.
• The consumer price index (CPI) rose 2.9 percent year-over-year in July. It was the first reading under 3 percent since March 2021, which further suggested inflation is easing.
• Retail sales increased by 1 percent, more than triple the estimate. It was the second consecutive beat, calming fears about the economy slowing.

Other points had less immediate impact but seemed to confirm a positive scenario:

• Initial jobless claims were lower than expected for the second straight week. That may break a run of worsening claims since late May. (Jobless claims count people seeking public assistance after being laid off, so lower readings are positive for the economy.)
• Consumer sentiment rose for the first time in five months and beat expectations. Americans expressed more optimism about the future, according to the University of Michigan.
• FactSet reported that S&P 500 earnings grew 10.9 percent in the second quarter, the biggest increase since the end of 2021. That’s an increase from the 8.8 percent growth forecast at the beginning of July, according to the research firm.
• NFIB’s Small Business Optimism Index rose to its highest level in over two years as labor costs and price increases slowed, sales expectations improved and owners planned to invest more on inventories.

Big Gains for Tech

Technology stocks jumped 7.7 percent, their biggest weekly gain since November 2022. The rally followed a sharp slide in the second half of July.

NVDA rose the most in 15 months amid positive analyst notes from banks including Jefferies and UBS. The semiconductor giant could keep getting attention into its quarterly report next Wednesday, August 28. Super Micro Computer (SMCI) and Micron Technology (MU), other beneficiaries of the AI boom, also rebounded from big drops over the previous month.

Gold and silver miners were the next big advancers as investors focused on a potential interest-rate cut by the Federal Reserve next month.

Consumer discretionaries rallied amid strong retail-sales data and a rebound in AMZN and TSLA.

Starbucks (SBUX) rose the most since 2008 after hiring Brian Niccol as CEO. Niccol is widely respected for helping Chipotle Mexican Grill (CMG) recover from troubles with tainted food last decade. His departure also made CMG the worst performer in the S&P 500 last week.

Ulta Beauty was another big gainer after getting an investment from Berkshire Hathaway (BRK.B).

Nike, Cisco

Outside of the top five, several other stocks jumped on noteworthy events.

Nike (NKE) had its biggest weekly gain in three years after getting an investment from Pershing Square. That spurred hopes activist investors will push for a turnaround, including a potential leadership change. Such a move would be similar to the pattern at SBUX.

Cisco Systems (CSCO) had its biggest weekly gain since November 2020 after earnings and revenue beat estimates. It also plans to cut 7 percent of its workforce and noted AI is starting to boost demand. Is the long-forgotten tech giant finally coming to life?

KeyCorp (KEY) rallied after Scotiabank acquired a minority stake at an 11 percent premium.

These stories, along with SBUX and ULTA, potentially show a growing trend of turnarounds and strategic actions driving price action.

Charting the Market

All 11 major sectors rose last week, along with 85 percent of the S&P 500’s members. That wide strength pushed the Advance/Decline (A/D) line to a new high, which may reflect positive breadth.

Interestingly, the index’s biggest decliner lost 5.5 percent of its value. In contrast, 63 index members rose by at least that percent.

The sharp rally brought the S&P 500 back near the 5,566 level where it peaked on August 1 before sliding. That could make some traders expect it to offer resistance — at least in the short term.

The index is now up by 0.6 percent this month. At the lows on August 5, it was down 7.3 percent.

Other charts were potentially consistent with risk appetite. Treasury yields declined as traders look for the Fed to cut rates on September 18. Cboe’s volatility index (VIX) and the U.S. Dollar Index, which often rise at times of fear, both fell. The Dow Jones Transportation Index also had its best week since March, which may reflect confidence in the business cycle.

The Week Ahead

This week’s agenda is quieter, with a handful of earnings and news from the Fed.

Christopher Waller, a member of the central bank’s board of governors, speaks today. Palo Alto Networks (PANW) reports earnings.

Policymakers Raphael Bostic and Michael Barr deliver speeches tomorrow. Lowe’s (LOW) reports earnings.

Wednesday features crude oil inventories and minutes from the last Fed meeting at 2 p.m. ET.

Initial jobless claims are on Thursday morning.

Friday morning brings perhaps the biggest event of the week: Fed Chair Jerome Powell’s Jackson Hole speech at 10 a.m. New home sales are also due.

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