Market Insights

Stocks are pushing to new record highs as China unleashes economic stimulus and chipmakers keep rising.

The S&P 500 rose 0.6 percent between Friday, September 20, and Friday, September 27. It was the third straight positive week, with almost two-thirds of the index’s members advancing. The Nasdaq-100 closed at its highest level since early July and the Dow Jones Industrial Average made another record.

Two big items dominated the market last week. First, the People’s Bank of China cut interest rates and announced plans to support the property market. Next came a report from Reuters that the government would borrow $284 billion to stimulate consumer spending and business investment.

The moves triggered dramatic rallies in a country whose stock market has struggled for almost three years. It also lifted materials stocks that could benefit from a stronger Chinese economy.

Semiconductors were the other big movers. The group started rallying on Tuesday as Nvidia (NVDA) broke out of a tight consolidation pattern. It jumped further on Wednesday and Thursday as Micron Technologies (MU) beat estimates and issued bullish guidance. The company reported “strong growth in AI” and cited the potential for more expansion as AI moves to PCs.

U.S. economic news was mixed. Initial jobless claims fell more than expected to a four-month low and durable-goods orders beat estimates. But personal income and spending missed forecasts.

Inflation Fading?

The Personal Consumption Expenditures (PCE) price index for August rose 2.2 percent. It was 0.1 percentage point less than expected and the lowest reading since February 2021. Crude oil also fell sharply on reports Saudi Arabia would drop its $100 per barrel price goal and planned to increase production.

In addition, the median sale price for new homes fell the most since October. It’s declined in 14 of the last 17 months, according to the Census Bureau. Redfin separately noted that asking rents for new apartments hit a two-year low as new units come online.

“I expect housing services costs to moderate further,” Adriana Kugler, a voting member of the Federal Reserve, said on Wednesday. “If conditions continue to evolve in the direction traveled thus far, then additional cuts will be appropriate.”

Interestingly, the yield on the 10-year Treasury note rose last week but failed to hold most of the increase. Could traders look for the key rate to move lower again?

China Breakout

Stocks associated with China climbed the most last week. Wynn Resorts (WYNN) and Las Vegas Sands (LVS), which operate casinos in Macau, had their biggest rallies in over four years. Copper producer Freeport McMoRan (FCX), often viewed as a proxy for China’s economy, also surged.

Solar-energy companies, which benefit from lower interest rates, advanced.

Airlines continued to rally as investors look for lower fuel costs to boost profits. There’s also been a focus on stronger fundamentals as demand remains healthy and carriers limit capacity growth.

Traditional oil-and-gas companies were the worst-performers last week. Healthcare, financials and real estate also slid. Materials were the best-performing sector overall.

Charting the Market

Last week saw the S&P 500 inch to new highs above 5,700. The advance/decline line also set a record, potentially confirming the move higher.

Indicators like moving average convergence/divergence (MACD) and the nine-day rate of change are also rising.

While there were few clearly bearish patterns on the index, last week had the narrowest range since the peak at the end of March (also the end of a quarter.) That may reflect a lack of confidence in the move.

Away from the S&P 500, two other charts may offer potential warnings.

First, the Japanese yen rallied sharply on Friday after Shigeru Ishiba won a party contest to become prime minister. He supports higher interest rates at a time when other countries are cutting. That’s a potential risk because strength in the yen often weighs on risk assets.

Second, Cboe’s volatility index (VIX) held the same 15 level where it bounced in August. Are nerves still on edge?

The Week Ahead

This week brings key economic data and some other potentially important events.

Today’s main item is a speech by Fed Chairman Jerome Powell at 1:55 p.m. ET. Carnival (CCL) reports earnings in the premarket.

Tomorrow brings the Institute for Supply Management’s manufacturing report. It’s also the deadline for a port-worker strike. Nike (NKE) issues quarterly results after the closing bell.

ADP’s private-sector payrolls report and crude-oil inventories are on Wednesday morning.

Thursday features ISM’s service-sector report and initial jobless claims.

Friday brings the monthly employment report, which includes payrolls, unemployment and wages. It’s typically a big event with the potential to impact interest rates and economic sentiment.

Standardized Performances for ETF mentioned above

Exchange Traded Funds (“ETFs”) are subject to management fees and other expenses. Before making investment decisions, investors should carefully read information found in the prospectus or summary prospectus, if available, including investment objectives, risks, charges, and expenses. Click here to find the prospectus. 

Performance data shown reflects past performance and is no guarantee of future performance. The information provided is not meant to predict or project the performance of a specific investment or investment strategy and current performance may be lower or higher than the performance data shown. Accordingly, this information should not be relied upon when making an investment decision.