Market Insights

Stocks fell last week but held a key level. Attention will now focus on the economy reopening for Memorial Day.

The S&P 500 initially tried to rally, only to fall on bearish comments from Dr. Anthony Fauci and Federal Reserve Chair Jerome Powell. At one point it was down almost 6 percent for the week, but then turned higher to end 2.3 percent below where it started.

The recovery came as oil bounced and the latest economic data suggested sentiment is rebounding. That focuses attention on the future as Americans shift from coronavirus lockdowns to summer-driving season. Powell also switched to a more optimistic stance by the weekend.

“In the long run, and even in the medium run, you wouldn’t want to bet against the American economy,” he told 60 Minutes yesterday. “This economy will recover.”

Economic Data: From Bad to Good

Last week featured more of the worst economic news in history. April’s retail sales collapsed a record-setting 16.4 percent and industrial production had its worst drop in at least a century. Inflation data also showed prices spiraling lower as coronavirus shuttered businesses from coast to coast.

But then forward-looking numbers for the current month of May were decent. The New York Fed’s Empire index rebounded quicker than expected as factory workers returned to their jobs. Consumer sentiment also surprised to the upside and jobless-claim data suggested people might already be going back to work.

The improvement comes at a time of widespread negativity. Most economic models predict the sharpest economic slowdown since at least the 1930s. More than half of individual investors are bearish as well. That can be a useful contrary indicator because it shows when accounts are heavily concentrated in cash.

Key Level Holds

On May 11, Market Insights highlighted how the S&P 500 held a key level at the August low of 2822. It probed that level several times last week before closing above it. That may create a similar technical situation as early April, which also had extreme negativity.

The top performers last week were biotechnology and precious metals. Silver in particular stood out, with a gain of more than 7 percent. It remains historically cheap relative to gold. Traders may want to keep an eye on the iShares Silver Trust (SLV) as central banks keep interest rates near record lows.

Energy, industrials and financials lagged the most last week. They remain near long-term lows but could be among the biggest gainers if sentiment swings back toward economic optimism.

Oil Rebounds Before Driving Season

Despite the decline in energy stocks, crude oil rose for the third straight week. It’s recovered from an unprecedented crash last month as producers slash production. Meanwhile, demand is returning as Chinese refineries increase volume and businesses around the world reopen.

Attention may now turn to the government’s inventory report on Wednesday morning. It’s been smaller than expected the last three weeks, which is potentially bullish because less excess petroleum in storage is good for prices.

Second, Memorial Day weekend begins on Friday. Even though coronavirus will have a big impact, it’s still an important time of the year for driving and gasoline consumption. Don’t be surprised if this emerges as a narrative in the next few days.

Retail Earnings

Speaking of the next few days, this week’s agenda focuses on housing and retail. Do-it-yourself giants Home Depot (HD) and Lowe’s (LOW) have rebounded more than most stocks after credit-card data suggested Americans spent heavily on home improvements during the lockdowns.

Today’s main item is NAHB’s homebuilder sentiment index. Its perception of buyer traffic and demand could be especially interesting.

Tomorrow brings housing starts and building permits. HD also issues results, along with Wal-Mart Stores (WMT) and Kohl’s (KSS).

Oil inventories and minutes from the last Fed meeting are due Wednesday. LOW, Target (TGT), Expedia (EXPE) and Take-Two Interactive (TTWO) are on the earnings calendar.

Thursday’s events include jobless claims and the Philadelphia Fed’s manufacturing report. Both of those are fast-moving and may provide a fresh look at the economy as it reopens. Existing home sales and Nvidia (NVDA) earnings are other items to watch.

The week concludes with Alibaba (BABA) results Friday morning, followed by the long weekend.