Market Insights

Stocks kept rising last week as the economy continues to defy naysayers.

The S&P 500 inched up 0.5 percent between Friday, June 7, and Friday, June 14. It followed the biggest weekly gain of the year as the index consolidated in a tight range above an important price level.

The big story is that there wasn’t one. Number crunchers talked about a recession coming out of the gate, but then were forced to boost estimates for second-quarter growth. Key leadership stocks mostly drifted, while new areas of strength emerged.

First, consider the data. On one hand consumers say they’re worried about President Trump’s trade war with China. But then hard numbers from the Commerce Department show them spending on all kinds of discretionary items like furniture and cars. They’re also optimistic about their own situations and inflation.

Speaking of inflation, it remained at the low end of estimates. That’s creating a sense that the Federal Reserve will stop saying they’ll be “patient” about raising interest rates this week. Dropping the word at this week’s meeting would be viewed as a stepping stone toward cutting rates on July 31.

Airlines Fly as Energy Tanks

Price action in the market showed an appetite for risk, albeit in new sectors. Airlines, a laggard for most of 2019, were the best major industry as investors looked for a higher fares and cheaper fuel.

A mix of consumer-discretionary stocks like Mattel (MAT), Whirlpool (WHR) and Home Depot (HD), also rallied. Material stocks like CF Industries (CF) and LydondellBasell (LYB) had the biggest gainers in the S&P 500, up 9 percent, as value money kept flowing into the sector.

Energy continued its losing ways as oil inventories pile up. Forecasters at both the U.S. Energy Information Agency (EIA) and the United Nations’ International Energy Agency (IEA) also cut their numbers as China slows.

Semiconductors were the other big weak spot after chip maker Broadcom (AVGO) cut guidance. The trade war with China is making an existing order slowdown even worse.

Allergan Leads the S&P Lower

Botox maker Allergan (AGN) had the biggest drop in the S&P 500 last week, down almost 9 percent. It didn’t have much news, but it does have a lot of debt. According to RBC, the short sellers are now starting to pile in. Check out our previous coverage of this trend for more.

Salesforce.com (CRM) was the second biggest decliner after agreeing to issue new shares to acquire Tableau Software (DATA) at a big premium.

A few things may be happening on the S&P 500’s chart as the index consolidated above its 50-day moving average. It also stayed above a price zone between 2870 and 2890 that’s been important since early last year. Don’t forget it had a “golden cross” two months ago.

Even with major leaders like Apple (AAPL) and Amazon.com (AMZN) drifting, you have to wonder whether investors will stay on the sidelines given the strong economy and possible rate cuts from the Fed. Maybe that’s why they accumulated obscure names like CF and LYB.

Here Comes the Fed

The Fed’s meeting on Wednesday is the most important event scheduled for this week. Several housing reports are due as well.

The New York Fed gets things rolling this morning with its Empire Index of manufacturing activity. NAHB’s housing market index follows.

Housing starts and building permits are the main item tomorrow.

The Fed’s interest-rate decision and statement are due at 2 p.m. ET on Wednesday, followed by Jerome Powell’s press conference. A rate cut would be a big surprise. Oracle (ORCL) reports earnings in the afternoon.

Initial jobless claims and the Philadelphia Fed’s manufacturing index follow on Thursday. Existing home sales conclude the week Friday morning.