Market Insights

Stocks held their ground last week as a strong economy partially offset worries about the trade war with China.

The S&P 500 began on a bearish foot, plunging as much as 2.7 percent on Monday. But it held the key 2,800 level and proceeded to climb the next four sessions. All told, the index slid 0.8 percent between Friday, May 10, and Friday, May 17.

It was a tale of two markets and two economies. The U.S. remained solid as housing came to life, advance manufacturing indexes beat estimates and jobless claims fell more than expected. There were also several company-specific positive stories.

The rest of the world, on the other hand, struggled. Virtually every currency dropped against the U.S. dollar — especially the Chinese yuan and Brazilian real. Industrial readings missed and trade figures cooled amid a growing consensus that President Trump holds an upper hand in trade negotiations with Beijing.

Housing Strong, Chips Hammered

Housing stocks eked out a small gain as the NAHB homebuilder sentiment index, housing starts and building permits all rose more than expected. Low interest rates helped, too.

Semiconductors were the worst-performing major industry group as the situation with China (a key buyer) worsened. Not only did the Asian country’s factory data miss. The White House also blocked U.S. companies from selling to Chinese IT giant Huawei — another blow to the chip space.

Safe havens like utilities, real-estate trusts and consumer staples were the only major sectors to advance. Financials struggled as low interest rates weighed on banks. Industrials also slid.

To illustrate, consider that the three worst performers in the S&P 500 last week all had something to do with China. (Each was down about 14 percent):

1. Quorvo (QRVO): The iPhone supplier followed Apple (AAPL) lower as the market worried about less access to the Chinese market.
2. Skyworks Solutions (SWKS): A similar story to QRVO, with the added problem of President Trump blocking sales to Huawei.
3. Deere (DE): The tractor warned about low crop prices as the trade war hammers soybean prices.

Coty Keeps Climbing

But there were winners like Coty (COTY), which rallied 15 percent. Under Armour (UAA) followed with an 8 percent gain. Both advanced against heavy short interest as investors looked for turnarounds in their business. Insurer Progressive (PGR) took third place after buyers defended an old consolidation zone around $72.

Speaking of defending zones, the S&P 500 is also trying to hold 2800. That was resistance three times in late 2018 as markets were crashing, followed by some key turns this year. Will it hold, or will it fall to the China bears?

This week be more susceptible to that kind of risk because there aren’t a ton of other events. Volume may also wane before the long Memorial Day weekend.

Earnings reports could hinge on China. Don’t be surprised if attention focuses more on tariff risk to their supply chains than actual results.

Home Depot (HD) and TJX (TJX) get the ball rolling tomorrow morning. Nordstrom (JWN) follows after the closing bell.

Wednesday features Lowe’s (LOW), crude-oil inventories and minutes from the last Federal Reserve meeting.

Best Buy (BBY), Medtronic (MDT), Autodesk (ADSK) and HP (HPQ) announce Thursday. Initial jobless claims and new home sales are also due.

Foot Locker (FL) and durable-goods orders wrap things up Friday morning.