Note: Our daily “S&P 500 Outlook, Forecast, and Trading plan for Wednesday, 01/16” will be posted around 8:30am EDT, Wednesday.
THE GIST (“THE WHAT”)
A fresh round of stimulus announced by China to abate an economic slowdown boosted investor confidence at the open. With easing of fears of an imminent global recession, the S&P 500 index rallied on the back of solid gains in Technology stocks, helping the index to regain the psychologically important 2600 level for the first time since December 14, 2018. Disappointing earnings by JPMorgan Chase & Co, however, capped confidence.
Taking a sharp leg higher at the open, the index pared gains following a catastrophic defeat of U.K. Prime Minister Theresa May in British Parliament where lawmakers rejected the Brexit plans with large numbers. However, gaining momentum on the back of a solid tech-led rally, the index closed near session highs at 2610.30, up 27.69 points and gaining 1.07% over previous session’s close.
THE DETAILS (The “How & Why”):
In an attempt to abate an economic slowdown, China signaled a fresh round of stimulus by improving credit availability for small and medium sized companies. Following a surprise drop in December’s exports, the Chinese Ministry of Finance pledged to cut taxes and increase infrastructure spending to help improve market sentiment.
Tech-heavy Technology and Communication Services led the advances, closing higher by 1.74% and 1.48%. FAANG stocks rose broadly on easing of recession jitters. Facebook Inc., Apple Inc., Amazon.com Inc. and Alphabet Inc. rose 2.45%, 2.05%, 3.55% and 3.33%, respectively. Netflix Inc. soared 6.52%, leading the Consumer Discretionary sector higher by 1.13% after the video streaming company announced its plan to raise its monthly subscription prices by 13% to 18%.
Health Care sector also outperformed the broader index, up 1.74%, led by a sharp 8.43% rise in Edwards Lifesciences Corp. after it agreed to pay $180 million to settle a long-standing patent dispute with rival Boston Scientific Corp. Nektar Therapeutics and Incyte Corporations were the other strong gainers within the sector, rising 7.23% and 7.10%, respectively.
Defensive sectors rebounded from recent losses in today’s broad-based rally. Utilities, Real Estate and Consumer Staples all closed higher by 1.27%, 1.06% and 0.96% higher, respectively. While utilities traded broadly higher for the day, PG&E Corporation and Edison International offset gains within the sector. While PG&E Corporation tumbled another 17.54% following bankruptcy filing, Edison International fell 5.33% following a stock downgrade by BofA Merrill Lynch, citing a challenging operating environment in California.
JP Morgan Chase & Co. dampened confidence within the Financials sector on missing earnings estimates for the first time in 15 quarters amid market volatility and lower-than-expected bond trading revenue. The banking giant, however, erased early session declines and closed the session with a 0.73% gain. Meanwhile, Wells Fargo & Co also shed 1.55% on missing sales estimates. Bank of America Corp, Goldman Sachs and Morgan Stanley are all scheduled to report their quarterly earnings later this week.
On the flip side, the only two sectors to underperform were Materials and Industrials, down 0.65% and 0.32%, respectively. Albemarle Corporation was the worst decliner within the Materials space, down 4.33% on stock downgrade, followed by a 4.11% decline in Sherwin-Williams Compan
y on issuing a lower-than-expected sales forecast.