Market Insights

Investors are returning to their old favorites, growth stocks, as the market continues its breakout to new highs.

The S&P 500 rose 1 percent in the Thanksgiving-shortened period between Friday, November 22, and Friday, November 29. It was the seventh positive week in the last eight and resulted in the third straight monthly gain.

While the current rally began with “value” stocks like financials, “growth” names like technology and e-commerce have assumed leadership in recent weeks. Those are the same kinds of companies that drove the market higher in the last decade. Are they now confirming the S&P 500’s breakout after nearly two years of consolidation?

Biotechnology was the top-performing industry as investors end a long boycott of the health-care sector. Consumer discretionaries, housing and retailers also outperformed as the holiday-shopping season approached.

The Russell 2000 also ripped to a new 52-week high, trying to break free of a range that’s held it in check for more than a year. There’s been talk of this index returning to favor after years of underperformance.

Recession? Doesn’t Look Like It

Last week was also stuffed with economic news — most of which was positive. Durable-goods orders, initial jobless claims, new-home sales and foreign-trade data all beat estimates. That forced estimates of fourth-quarter gross domestic product (GDP) sharply higher. Third-quarter GDP was also revised upward.

What’s going on? For one thing, consumers keep spending. Second, tariffs against China haven’t slowed business investment as much as feared. Third, the housing market continues to gain momentum as Americans’ bank accounts swell and interest rates stay low.

Speaking of interest rates, Federal Reserve Chairman Jerome Powell indicated that they won’t go up anytime soon by declaring a commitment to 2 percent inflation.

That combination of positives seems to be creating another “Goldilocks” scenario, with steady growth spurring confidence in equities and depressing volatility.

Retail Leads the S&P 500

A pair of consumer-discretionary stocks were the only S&P 500 members with double-digit gains last week. Best Buy (BBY) rose 11 percent after crushing estimates and providing strong guidance into the holidays. Like Wal-Mart Stores (WMT) and Target (TGT), the electronics retailer is using services to keep customers in its brick-and-mortar locations.

Under Armour (UA) followed, up 10 percent, after Raymond James called it a bargain. The athletic-apparel company had previously crashed on accounting worries and disappointing guidance.

Dollar Tree (DLTR), on the other hand, had its biggest weekly drop since 2009 after missing estimates. Management warned that its Family Dollar acquisition and tariffs will hurt margins.

Non-Farm Payrolls on the Docket

This week brings important monthly economic reports and a handful of earnings. There’s also an OPEC meeting.

The Institute for Supply Management’s manufacturing index gets things rolling today. It’s trended lower all year and consistently missed estimates as executives worry about a tariffs and a slowing global economy.

Construction spending is also due. Both numbers will provide clues about the state of business investment.

Tomorrow’s quiet, aside from a handful of tech results in the afternoon: Salesforce.com (CRM), Marvel Technologies (MRVL), Workday (WDAY) and Zscaler (ZS).

Wednesday features ADP’s private-sector payrolls report, ISM’s services index and crude-oil inventories.

Thursday’s big items are initial jobless claims and factory orders. OPEC begins its meeting as well, with news reports indicating the oil cartel will extend production cuts from March 2020 until June 2020.

The week concludes with the Labor Department’s key non-farm payrolls report Friday morning.