Market Insights

Stocks broke out to new highs last week, led by technology and cyclicals like financials and cruise ships.

The S&P 500 rose 1.1 percent between Friday, October 4, and Friday, October 11. It was the fifth straight positive week. The index also closed above 5,800 for the first time, less than a month after crossing 5,700.

No single catalyst clearly explained the move. Instead, there seemed to be a general trickle of money into equities as investors began the fourth quarter with cash to deploy.

Economic events were important but mostly unsurprising. Minutes from the last Federal Reserve meeting revealed some officials would have supported a smaller rate cut last month. Policymaker Raphael Bostic hinted the central bank may not ease next meeting. However bond yields had already risen, and the news had little impact.

Inflation readings were largely inline. The Consumer Price Index (CPI) was 0.1 percentage point higher than expected, but the key shelter component slowed sharply. That could suggest structural inflation continues to diminish. The Producer Price Index (PPI) was lower than forecast.

Uber vs Tesla

Moves at the individual-company level, on the other hand, appeared more noteworthy:

• Super Micro Computer (SMCI), jumped on news it had deployed more than 100,000 GPUs with its liquid-cooling solutions. The news lifted an AI stock that’s struggled after more than tripling in the first quarter.
• Uber Technologies (UBER) rallied after Tesla (TSLA) unveiled robotaxis that failed to impress investors. That relieved worries that UBER will face competition from TSLA in the ride-sharing market.
• TSLA dropped in response, making it the worst-performing member of the S&P 500. Elon Musk’s EV maker also fell back into negative territory on a year-to-date basis.
• Cruise-ship operators rallied after Citi pointed to the potential for higher earnings and multiples. The firm hiked its price target by 50 percent on Norwegian Cruise Lines (NCLH). As a cyclical industry with relatively high debt loads, will cruise-ship operators benefit from a stronger economy and lower interest rates? Carnival (CCL) was another big mover in the group.
• Cybersecurity stocks like Palo Alto Networks (PANW) climbed as money rotated back into software companies. It marked a potential shift after tech investors spent most of the year focused on semiconductor names like Nvidia (NVDA).
• Industrial suppliers rallied after Fastenal (FAST) beat estimates on strong unit volumes. That spurred hopes of a manufacturing rebound (despite consistently negative readings from the Institute for Supply Management). FAST had its biggest weekly gain since early 2020. Rival Grainger (GWW) shot to a record high.

Technology rose the most overall last week. Industrials, financials and healthcare also outperformed. Utilities and consumer discretionaries fared the worst.

Banks Break Out

Earnings season got off to a positive start after JPMorgan Chase (JPM) and Wells Fargo (WFC) beat estimates. They benefited from wider interest margins and increased lending. The KBW Bank Index jumped to its highest level in 2-1/2 years. Could investors see more opportunities in financials with the economy apparently skirting recession? The yield curve is also no longer inverted. Both of those factors may support the group.

Banks and financials are likely to remain in focus this week as companies like Bank of America (BAC), Citi (C), Goldman Sachs (GS) and American Express (AXP) issue results. Retail sales on Thursday could be another catalyst because they’ll show the strength of consumer spending. See below for more upcoming events.

Speaking of earnings, Bank of America said equities could advance because investors are too pessimistic about results. A separate report from FactSet estimates that profits will probably increase by 7 percent this reporting season. It added that consensus Wall Street numbers see growth accelerating into double digits the next three quarters.

Charting the Market

The S&P 500 began last week with a decline slightly below 5,700. It then proceeded higher, resulting in a higher weekly low above July’s peak. That suggests new support has been established above old resistance.

The index also stayed above the rising 21-day exponential moving average and the 9-day rate of change turned positive after a slight drop. Those signals are potentially consistent with a short-term uptrend.

Other points may confirm the market’s broader strength. For example, TradeStation data showed a jump in the number of S&P 500 companies hitting new 52-week highs. The total more than tripled on Friday to 66, the highest reading in almost a month.

Cboe’s volatility index (VIX) also retreated from the 23-24 area where it peaked in early September. Further declines from here could also potentially support risk appetite.

The Week Ahead

Earnings get more active this week. Results are due from at least 40 members of the S&P 500.

Nothing important is scheduled for today, and some items are pushed later in the week because of the federal holiday.

Tuesday morning features quarterly numbers from BAC, C, GS, Johnson & Johnson (JNJ) and United Health (UNH).

Wednesday brings earnings from Morgan Stanly (MS).

Thursday’s the busiest session, with retail sales, initial jobless claims and industrial production in the premarket. Crude-oil inventories are later in the morning, one session later than usual. NAHB’s housing-market index is also due. Netflix (NFLX) issues results in the afternoon.

Housing starts and building permits are on Friday, along with earnings from AXP, Procter & Gamble (PG) and Schlumberger (SLB).