Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Monday, 04/01” will be posted around 8:30am EDT, Monday.
THE GIST (“THE WHAT”)
Primarily driven by optimism around U.S. – China trade deal and an overly dovish Federal Reserve, the S&P 500 index recovered from December’s steep sell-off and logged its best quarterly performance since 2009 with a 14.03% return. A tweet by Treasury Secretary Steven Mnuchin late Thursday that the trade talks have been “productive” boosted investor sentiment at the open.
Gapping higher at the open, the index maintained gains albeit on a whipsaw price action alongside a slight rise in Treasury yields following a relatively tamed inflation data. Gains were broad-based with nine out of the eleven primary sectors closing higher led by Health Care, Industrials and Technology. The index closed Friday’s session near day’s highs at 2834.40, up 18.96 points and gaining a decent 0.67% over previous session’s close.
THE DETAILS (The “How & Why”):
Celgene Inc. lifted the Health Care space higher after the biotech company surged 7.88% on reports that the top proxy advisors Institutional Shareholder Services and Glass Lewis have voted for its merger with Bristol-Myers Squibb. Align Technology Inc. was another strong performer in the sector, rising 3.80% after it agreed to settle patent disputes with Straumann Group in the U.S., UK and Brazil. Pharmaceutical giant Gilead Sciences Inc. added 2.07% following an upbeat trial data for its rheumatoid arthritis treatment Filgotinib.
Trade-sensitive Industrials rose broadly by 1.01% on trade optimism with Caterpillar Inc. and Boeing Inc. rising 2.36% and 1.86%. Airline stocks were the strongest performers within this space, with Southwest Airlines Co, American Airlines Group Inc. and Delta Air Lines Inc. all rising more than 2.50% each.
China-exposed semiconductor stocks were among the top gainers of the session, also receiving a boost from trade optimism. Micron Technology Inc., Western Digital Corp and Seagate Technology PLC jumped 5.06%, 5.05% and 4.13%, respectively.
Materials, Consumer Staples and Utilities sectors were the other notable gainers, closing modestly higher by 0.75%, 0.69% and 0.60%, respectively. CarMax Inc. soared 9.61% to be the top gainer of the session, lifting the broader Consumer Discretionary space higher after the used-car retailer beat fourth-quarter earnings estimates.
Financials also rose 0.32% alongside a rise in Treasury yields. The PCE Index for January indicated that the annual inflation rate fell 1.4% from 1.8%, well below the Fed’s target inflations rate of 2%. The 10-year Treasury yields settled at 2.412% and rose slightly above the 3-month Treasury yield, turning the yield curve slightly positive for the first time in a week.
The only sectors not participating in day’s gains were Energy and Real Estate, closing slightly lower by 0.16% and 0.11%, respectively. Helmerich & Payne Inc. fell 2.30% to be the biggest decliner within the Energy space, followed by HollyFrontier Corp. and Marathon Petroleum Corp., down more than 1.50% each.
February retail sales, durable-goods order data, ISM manufacturing index and March jobs data are all due to be released over the coming week. Investors will be closely reading into these key economic data, looking for signs of slowing economic activity especially after the recent warning signals by inverting yields curve.