Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 02/04” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
Powered by better-than-expected earnings and a dovish Fed, the S&P 500 index closed the week with a decent 1.57% gain over previous week’s close. A surprise jump in NFP (Non-Farm Payroll) data and ISM (Institute for Supply Management) manufacturing survey index lifted the index in the early session. Monthly wage growth rate came in at its slowest pace since October 2017, reaffirming recent comments by the central bank that inflationary pressures remain muted.
Gains, however, lost steam mid-session as investors digested the latest batch of mixed quarterly results. While Amazon.com Inc. disappointed investors with its sales outlook, Exxon Mobile Corp and Chevron Corp boosted energy stocks after beating estimates. Whipsawing between gains and losses, the index closed the choppy session mostly flat at 2706.53, up only 2.43 points over previous session’s close.
(Click here to check the hypothetical trading results of our trading plans published for today and earlier)
THE DETAILS (The “How & Why”):
The closely watched NFP data for the month of January came in at 304,000, well above the expected figure of 172,000, indicating resilience in the economy and easing fears of a looming economic slowdown. Unemployment edged up to 4% compared to 3.9%, primarily due to the partial government shutdown last month.
Meanwhile, average hourly wages grew at its slowest pace since October 2017, reaffirming the Federal Reserve’s dovish stance. Investors mostly shrugged off the strong economic data, focusing instead on the latest batch of mixed quarterly results. Treasury yields, however, rose on the back of strong economic data.
Amazon.com Inc. weighed down heavily on the Consumer Discretionary sector on disappointing outlook. The e-commerce giant beat estimates but still fell 5.38%, falling into bear market on guiding lower, citing slowing retail sales. Other retail and departmental chain stocks also fell in tandem. Macy’s Inc., Kohl’s Corp, Target Corp and Nordstrom Inc. all fell more than 2%. Consumer Discretionary was the worst performer of the session, down 1.77%.
Defensive sectors were the other decliners in today’s choppy session, giving back some of previous session’s strong gains amid the end-of-the-week loss of risk appetite. Real Estate, Utilities and Consumer Staples sectors all closed the session lower by 0.67%, 0.30% and 0.27%, respectively. Communication Services sector was dragged lower by AT&T Inc. and Verizon Communications Inc. These telecom giants fell 0.20% and 0.93% respectively on posting weaker-than-expected results.
Leading the advances were Energy sector, up 1.83% on getting a major boost from earning beats by Exxon Mobile Corp and Chevron Corp, despite the sharp decline in crude oil prices in the last quarter. Oil prices hit a two-month high following upbeat U.S. economic data, coupled with concerns of a fall in supply due to the ongoing turmoil in Venezuela.
Technology and Financials were the other notable gainers of the session, up 0.61% and 0.51% respectively. Security software maker Symantec Corp. was the top gainer of the session, soaring 8.99% and boosting other cybersecurity stocks on beating revenue and earnings estimates.
Earnings season continues next week with the next wave of earnings reports by big names like Alphabet Inc., Twitter Inc., Seagate Technology and Eli Lilly And Company. Investors will also be paying close attention to key economic data, including Services PMI, Core Inflation and ISM nonmanufacturing data looking for cues for any economic slowdown, especially after a surprising jump in NFP data.
