Market Insights

Nasdaq stocks bounced last week as investors shifted away from reopening plays like energy.

The Nasdaq-100 rose 0.1 percent between Friday, May 14, and Friday, May 21 — the only major index to rise last week. It was the first time that the Nasdaq-100 gained while the S&P 500 fell since the week ended September 25.

That could be important because sectors that will benefit from the economy reopening struggled. Energy dropped 2.5 percent. Transports had their worst week since late January, down almost 3 percent. Retailers and housing also retreated.

The shift came amid some interesting events. First, major retailers like Walmart (WMT) and Costco (COST) lifted mask mandates as coronavirus cases sank to an 11-month low. Second, commodities like corn, lumber and iron ore dropped from long-term highs. Third, the Federal Reserve started talking about tighter monetary policy.

Sell the News?

“Buy the rumor, sell the news,” is a common adage in trading. It means investors often act on events they expect to happen. Once the news occurs, they exit the position. In this case, traders were positioned for higher inflation and a lifting of coronavirus restrictions. Now that it’s starting to materialize, money could be returning to the longer-term leaders: growth stocks.

Consider last week’s top gainer in the S&P 500: Enphase Energy (ENPH), a solar-energy stock that appreciated 553 percent last year but fell 38 percent in early 2021. High-flying Chinese technology stocks like Netease (NTES) and Pinduoduo (PDD) led the Nasdaq-100 last week. They also had been lagging for months.

All told, the strongest sectors were Chinese tech stocks, gold miners, software makers and semiconductors.

The economic data was mixed. Initial jobless claims fell more than expected, reaching another pandemic low below 500,000. Housing data was much worse than expected as high material costs halted construction and buyers shunned high prices. Still, growth could improve as more businesses reopen.

Fed Taper?

“It might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases,” Fed officials said in minutes from their last meeting April 27-28. Even thought it would take months and start with fewer bond purchases (not interest-rate increases), it was the first time since the pandemic began that central bankers mentioned tighter policy.

Last week was also noteworthy because the S&P 500 tested its 50-day moving average for the first time in almost two months.

This week is relatively uneventful, followed by the long weekend for Memorial Day.

New home sales and consumer confidence are due tomorrow.

Wednesday brings crude-oil inventories, along with quarterly results from Nvidia (NVDA) and Snowflake (SNOW).

Thursday features revised gross domestic product for the first quarter, initial jobless claims, durable-goods orders and pending home sales. Salesforce.com (CRM), Best Buy (BBY), Costco (COST) and Gap (GPS) report earnings.