Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 01/09” will be posted around 8:30am EDT, Wednesday.
THE GIST (“THE WHAT”)
Closing the session higher for the third straight session, the S&P 500 extended gains as investors remain cautiously optimistic about a potential trade deal between the U.S. and China. Opening higher, the index, however pared gains and briefly entered into a negative territory, registering the day’s low at 2547.56 alongside weakness in Financials and Semiconductor stocks.
Real Estate and Communication Services helped lift the index higher in the afternoon session on a steady momentum to close the choppy session near session highs at 2574.41 (testing the upper bound level indicated by our models to trade off of and closing less than one point below it. Click here to read the full text). Ten out of the eleven primary sectors closed the session higher in today’s broad-based rally, albeit with a choppy price action.
THE DETAILS (The “How & Why”):
Defensive sectors were the best performers of the session. Real Estate, Utilities, Consumer Staples and Health Care sectors all closed higher by 1.78%, 1.26%, 0.96% and 0.95% respectively. PG&E Corporation was the only utility company ending the session in losses, tanking another 7.34% after S&P Global Ratings downgraded its stock to a junk rating, citing excessive potential liabilities from last year’s California wildfires.
Trade sensitive Industrials and Materials stocks rose modestly higher by 1.41% and 1.01% on optimism that the U.S. and China could strike a mutually beneficial deal before the March 2 deadline. Boeing Co. was the top gainer within the Industrials space. The aircraft and defense company rose 3.79% on reports of record strong demand for its jets.
Communication Services and Consumer Discretionary sectors also extended their previous session’s gains, up 1.58% and 1.14% respectively. While the broader Technology sector also closed the session higher by 0.90%, semiconductor stocks under-performed after the world’s biggest smartphone and chip maker Samsung Electronics Co Ltd predicted a massive 30% drop in its fourth-quarter operating profit, citing lackluster demand for its memory chips.
This latest sign of weakness within the tech industry comes just less than a week after Apple Inc. issued a rare guidance cut, citing slowing Chinese demand. Applied Materials Inc., NVIDIA Corp and Lam Research Corp were the worst performers within the Technology space, declining 4.05%, 2.49% and 1.69% respectively.
FAANG stocks rose broadly higher in today’s broad-based optimism. Facebook Inc., Amazon.com Inc., Netflix Inc. and Alphabet Inc. all gained 3.25%, 1.66%, 1.56% and 0.88%, respectively. Apple Inc. also rose 1.91% after its CEO Tim Cook reassured worried investors, saying that the tech-giant’s ‘ecosystem has never been stronger’.
Oil prices rose for the seventh straight session on hopes of a potential U.S. – China trade deal, lifting the Energy sector by 0.83%. A possibility of a supply cut by the OPEC in an attempt to avoid a supply gut also supported the rise in oil prices.
Treasury yields continued edging higher alongside a rise in investor’s risk appetite this week. Financials sector, however, closed the session unchanged. Bank shares fell after Jefferies downgraded J.P. Morgan Chase and other banks, citing that the Federal Reserve might not raise interest rates further. J.P. Morgan Chase & Co, Wells Fargo & Co. and Citigroup Inc. shed 0.19%, 0.21% and 0.27% respectively.