Market Insights

Tesla could be driving the stock market toward a breakout as a flood of major catalysts hit.

The electric car maker jumped 33 percent last week after reporting strong orders and saying production could reach 2 million vehicles this year. The news lifted sentiment in growth stocks and consumer discretionaries. It also spurred hopes in the economy as investors await more results and look for the Federal Reserve to slow interest-rate hikes. (See “The Week Ahead” below.)

All told, the S&P 500 rose 2.5 percent between Friday, January 20, and Friday, January 27. The index has risen in three of the four weeks this year and is back near levels where it stalled in early December. The Nasdaq-100, Dow Jones Industrial Average and Russell 2000 also climbed.

Last week brought other positive items for the broader technology sector — especially semiconductors:

• Piper Sandler said chipmakers are bottoming, and could benefit from the Chinese economy reopening.
• Publicity surrounding ChatGPT drew attention to artificial intelligence plays like Nvidia (NVDA) and Advanced Micro Devices (AMD).
• Seagate Technology (STX) reported strong earnings and revenue as demand improved.
• Bloomberg reported that Western Digital (WDC) is discussing a potential merger with Japan’s Kioxia.

The economic data was modestly positive. Gross domestic product and initial jobless claims were better than anticipated, although higher inventories and weak consumer spending may indicate a coming slowdown. There were also signs of improvement in the housing market as mortgage applications rose and pending home sales unexpectedly increased.

‘Risk-On’ Rallies

Sectors and industries associated with risk appetite fared best last week and “safe havens” struggled. That’s a potential sign of improving investor sentiment.

For example, consumer discretionaries, communications and technology rose the most. Retailers, semiconductors and recent IPO stocks also outperformed. All of those would stand to benefit from the Fed pausing interest-rate hikes.

Health care was the worst performer and the only sector to drop more than 1 percent. Utilities also declined fractionally and consumer staples were little changed. (These are the “safe havens.”)

Some under-the-radar stocks also jumped on strong quarterly results. AT&T (T) beat earnings estimates, cut costs to improve free cash flow and reduced debt. Paccar (PCAR) flew to record highs after earnings and revenue shot past consensus. The truck maker is benefiting from a wave of vehicle upgrades.

Steelmakers Nucor (NUE) and Steel Dynamics (STLD) rallied after their top and bottom lines surprised to the upside. (STLD may interest some investors because it was added to the S&P 500 last month. NUE has been a member for 38 years.)

“We’re starting to see a number of demand drivers gathering momentum, including the reshoring of manufacturing, large infrastructure investments and grid modernization,” said NUE CEO Leon Topalian.

Charting The Market

The S&P 500 has made higher lows since October while pushing against the downtrend that began a year ago. The tightening range could make some traders expect bigger moves — especially if prices squeeze above last month’s high. The chart below includes two other advanced studies made possible by TradeStation’s award-winning platform.

First, the advance/decline line has risen above its December high despite the S&P remaining below its respective peak. That kind of “positive breadth” can indicate broad demand for stocks in general.

Second, the bottom study plots the 50-day moving average as a ratio of the 200-day MA. The histogram has climbed since August and could enter positive territory this week. That would represent a “golden cross,” which can indicate the longer-term trend is rising. (Notice how the ratio went negative when a “death cross” occurred in March.)

The Week Ahead

If investors are watching for a potential push above the December high, what could trigger a breakout?

This week is packed with news, but the Fed meeting on Wednesday is likely the biggest catalyst.

Today has no economic data or major quarterly results.

Tomorrow brings the employment cost index (a potential inflation gauge) and consumer confidence. Caterpillar (CAT), McDonalds (MCD) and Advanced Micro Devices (AMD) are some of the notable earnings reports.

ADP’s private-sector payrolls report is the first data point Wednesday morning. The Institute for Supply Management’s manufacturing index and crude-oil inventories follow.

However attention will probably focus on the Fed’s interest-rate decision at 2 p.m., which is followed 30 minutes later by Chairman Jerome Powell’s news conference. Meta Platforms (META) reports earnings later that afternoon.

Thursday brings interest-rate news from the Bank of England and European Central Bank. Jobless claims follow in the U.S.

That afternoon also has several big earnings: Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL) and Qualcomm (QCOM) and Ford Motor (F).

The week ends with the Labor Department’s important monthly payrolls report on Friday morning.

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