Market Insights

Stocks are bouncing at a key level as the economy tries to recover from the coronavirus pandemic.

The S&P 500 tested below 3,000 early on Monday, only to stabilize and jump higher. It then squeezed into a tight range, ending with a 1.9 percent gain on the week. The index has risen in four of the last five weeks and is near the end of its best quarter in 22 years.

Retail sales, the Empire State Manufacturing index and NAHB’s housing index not only crushed forecasts. They also posted record gains. The Federal Reserve boosted confidence by pledging to buy individual corporate bonds. President Trump spurred optimism with talk of a new infrastructure bill.

Those weren’t the only positives. Researchers in the U.K. found that the common steroid drug dexamethasone reduced coronavirus deaths. Rail traffic rebounded to its highest level in almost three months. Global oil producers also agreed to limit output, helping the energy market rebalance from the extreme shock of coronavirus.

Tech and Biotech Lead the Gains

Healthcare was the top-performing sector last week, led by biotechnology stocks. A mix of lesser-known technology companies like Keysight Technologies (KEYS) and Lam Research (LRCX) also drove a rally in technology.

The price action showed a potentially bullish new market trend: Smaller and newer companies are breaking out as their larger peers stagnate.

• Media: Spotify (SPOT) flew to new record highs. Walt Disney (DIS) and Comcast (CMCSA) aren’t even close.
• Enterprise software: Zoom Video Communications (ZM), Twilio (TWLO), Datadog (DDOG), Coupa Software (COUP) hit new highs. Microsoft (MSFT) and Salesforce.com (CRM) didn’t.
• Electronic Payments: Square (SQ) and PayPal (PYPL) hit new highs as Mastercard (MA) and Visa (V) drifted.
• E-Commerce: Shopify (SHOP), Etsy (ETSY), Wix.com (WIX) and Wayfair (W) established new records. Alphabet (GOOGL) is staggering, while Amazon.com (AMZN) and Facebook (FB) remained below their recent highs.

Those examples suggest investors are more confident about the future and willing to take risk. They could also indicate new leaders are emerging, which could help drive the market in coming months.

China Tech Keeps Flying

Chinese technology stocks spiked more than 8 percent last week as companies like JD.com (JD) issued shares on Hong Kong. The U.S. Commerce Department eased rules on Chinese telecom giant Huawei, calming worries about tensions between Washington and Beijing. Tencent also reportedly bid for part of Iqiyi (IQ), the “Netflix of China.”

Utilities and energy were the worst performers last week.

The S&P 500 is at potentially important crossroads technically. Two weeks ago, it peaked near the same level where the coronavirus crash began in late February. The index is also struggling with another price zone where it stalled in early March.

Those are signs of resistance preventing further gains. However, there’s potential support to the downside around 3,000 and the 200-day moving average.

The direction of coronavirus may determine whether it breaks higher or lower. Fed officials spooked markets last week by saying the economy will struggle until the outbreak is controlled. New cases of the disease also rose back above 30,000 per day.

Apple In Focus This Week

We now enter the last full week of the second quarter. It’s a relatively quiet time, with few economic reports or earnings.

Apple’s (AAPL) Worldwide Developers Conference begins today and runs through Friday. It’s bigger than ever because coronavirus is forcing the event to go online. Existing-home sales are also due.

Oil inventories come out on Wednesday. Jobless claims and Nike (NKE) results are reported Thursday.

Personal income and spending for May are the main items on Friday. The previous month they showed a record savings rate as Americans hoarded government checks.

Next week will be cut short by Independence Day, celebrated on Friday, July 3.