Market Insights

The stock market is entering one of its most important weeks in years, with the S&P 500 parked at a key level. Traders may be watching for a breakout.

Apple (AAPL), Microsoft (MSFT) and Amazon.com (AMZN) — the three trillion-dollar companies — report earnings. They’re joined by other closely watched names like Tesla (TSLA), Advanced Micro Devices (AMD) and Facebook (FB).

Several states, including Florida, Minnesota and Colorado, will start lifting coronavirus lockdown orders. There’s also a Federal Reserve meeting and an important industrial report.

The S&P 500 has been stuck at its 50-day moving average and a low from last summer. Will it break out as investors start putting coronavirus in the rear-view mirror? Or will it roll over and retest some of its recent lows? Some of these looming events may answer that question.

Positives Despite a Negative Week

The S&P 500 declined 1.3 percent between Friday, April 17, and Friday, April 24. It was the first negative week in the last three, but there were positives beneath the surface.

First, volatility is falling. Cboe’s volatility index ($VIX.X) closed at its lowest level since March 4. The market’s day-to-day swings are also getting smaller. That can often be a sign of confidence returning as investors shift from broad indexes to individual companies.

Second was the outperformance of economically sensitive companies like small caps, energy and banks. Those stocks were some of the hardest hit when Covid-19 shuttered businesses around the world and erased millions of jobs. But now they’re trying to bounce, while safe-havens like utilities and consumer staples lag.

Capitulation in Oil?

Last week’s crash in oil was another huge story. Crude-oil futures for May delivery (CLK20) made an unprecedented drop below $0 before rebounding. It resulted from a collapse in short-term demand as millions of Americans sheltered in their homes.

While the decline was unnerving and bizarre, prices managed to recover and energy stocks rose. Will traders now view the -$40.32 low as “capitulation?” That’s when all the bad news is priced and selling pressure climaxes. (A similar washout occurred in the S&P 500 on March 23, followed by a rebound.)

Even with crude’s major selloff, seven of the nine biggest gainers in the S&P 500 last week were energy companies. Apache (APA) led with a 26 percent gain. Noble Energy (NBL) and Halliburton followed, up 18 percent and 17 percent, respectively.

Traditional retailers like L Brands (LB) and Gap (GPS) had the biggest declines. You have to wonder how long they’ll even remain in the index now that they’re under $3 billion in market cap. Speaking of indexes, Zoom Video Communications (ZM) was added to the Nasdaq-100 after lockdowns spread its software to millions of new users.

ZM’s worth more than 8 times the combined market caps of M and GPS. If it were in the S&P 500, it would rank No. 133, between Norfolk Southern (NSC) and Dollar General (DG).

Agenda for a Huge Week

This week’s important because of earnings, the economy reopening and the Fed.

Earnings matter because such huge companies report numbers. AMZN already broke out to new highs after coronavirus spurred demand for e-shopping. AMD has also surged thanks to cloud computing and video gaming.

It’s hard to judge social lockdowns ending, but the bulls may want to see consumers returning to stores and restaurants. That could help economists predict the speed of the recovery.

The Fed may be less important than usual because it’s already done so much to support the economy before its meeting Wednesday.

Here are the big items after a quiet Monday:

Tuesday: Caterpillar (CAT), Pfizer (PFE) and United Parcel Service (UPS) report earnings in the pre-market. AMD is due in the post market.

Wednesday: Boeing (BA), Mastercard (MA) and General Electric (GE) announce in the premarket. Oil inventories come out one hour into the session. The Fed issues its statement at 2 p.m. ET and holds a press conference 30 minutes later. MSFT, TSLA, and Qualcomm (QCOM) report after the closing bell.

Thursday: Twitter (TWTR), McDonald’s (MCD) and jobless claims are the big premarket items. AAPL, AMZN and Visa (V) follow in the afternoon.

Friday: Exxon Mobil (XOM) and Chevron (CVX) report before the opening bell. The Institute for Supply Management’s manufacturing index comes shortly after the session begins.