Weekly Wrap

Markets were closed on Monday for President's Day. The S&P 500 hit a fresh record high (6,147) in first half of the week, driven by resilience to selling interest and the inclination to buy on any weakness.

The vibe shifted, though, when a consolidation trade rooted in profit-taking activity prevailed by the end of the week. Valuation concerns fueled the consolidation trade along with the loss of momentum in some of the biggest year-to-date winners. That induced chatter about the market possibly being at a near-term top, which in turn has curtailed buying interest. 

Growth concerns were also in play following Friday's economic data.  The preliminary February S&P Global US Services PMI fell to contraction territory (i.e. below 50), the final University of Michigan Consumer Sentiment report for February dropped to 64.7, and existing home sales declined 4.9% month-over-month in January. 

Disappointing fiscal Q1 and full-year guidance from Walmart (WMT) also contributed to the selling interest in the latter half of the week.

Mega cap stocks and small cap stocks saw the largest decline while the "rest" of the market held up okay. The market-cap weighted S&P 500 declined 1.7% from last Friday; the equal-weighted S&P 500 registered a 0.7% decline this week; the Russell 2000 fell 3.7%; and the Vanguard Mega Cap Growth ETF (MGK) logged a 2.7% decline.

The weakness in the mega cap space led the S&P 500 consumer discretionary (-4.3%) and communication services (-3.7%) sectors, which house mega cap components, to register the largest declines among the 11 sectors. The defensive-oriented sectors like utilities (+1.4%), consumer staples (+0.9%), and health care (+1.1%) were some of the top performers.

Market participants were digesting more talk about tariffs, but took it in stride due to a view that tariffs are more of a bargaining chip than a permanent feature. President Trump said the auto tariff rate will be in the neighborhood of 25% starting April 2, and that he is also considering tariffs for pharmaceuticals and semiconductors.

• Dow Jones Industrial Average: -2.5% for the week / +2.1% YTD
• S&P 500: -1.7% for the week / +2.2% YTD
• Nasdaq Composite: -2.5% for the week / +1.1% YTD
• S&P Midcap 400: -3.0% for the week / -0.6% YTD
• Russell 2000: -3.7% for the week / -1.6% YTD

Tuesday: 

It was a mostly lackluster day until the final 10 minutes of trading. The S&P 500 flirted with its prior close until a surge of buying interest propelled the index to a fresh record high (6,129) in the late afternoon. The Dow Jones Industrial Average, which also closed at its best level of the day, logged a fractional gain and the Nasdaq Composite closed 0.1% higher.

There was a positive bias under the index surface even as major indices traded lower, which acted as an upside catalyst and invited more buying in the final moments of the day.

The tepid price action through most of the session followed a long weekend that didn't present much market-moving news and a limited economic calendar.

Reviewing Tuesday's economic data:

• February Empire State Manufacturing 5.7 (Briefing.com consensus -2.0); Prior -12.6
• February NAHB Housing Market Index 42 (Briefing.com consensus 47); Prior 47

Wednesday: 

Wednesday's session started out similar to Tuesday's session. That is, the major indices traded in lackluster fashion around their prior closing levels. The session also ended similar to Tuesday's session, with the S&P 500 at a new record high.

The limited action in the early going was rooted in profit-taking activity, but stocks showed nice resilience to selling interest, which became its own upside catalyst by the close.

Strength in the mega cap and semiconductor spaces played an integral role in index gains.

Outsized moves in either direction were mostly limited to companies that reported quarterly results.

Market participants were digesting more talk about tariffs, but took it in stride due to a view that tariffs are more of a bargaining chip than a permanent feature.

Reviewing Wednesday's economic data:

• January housing starts declined 9.8% month-over-month to a seasonally adjusted annual rate of 1.366 million (Briefing.com consensus 1.400 million) from an upwardly revised 1.515 million (from 1.499 million) in December. Building permits rose 0.1% to a seasonally adjusted annual rate of 1.483 million (Briefing.com consensus 1.450 million) from a downwardly revised 1.482 million (from 1.483 million) in December.
  • The key takeaway from the report is that there was no growth in starts or permits for single-family housing units, which will contribute to ongoing affordability constraints in the existing home market, which is short on inventory. Single-unit starts were down 8.4% month-over-month while single-unit permits were flat.
• The weekly MBA Mortgage Index was down 6.6% after increasing 2.3% a week ago. The Purchase Index was down 5.9% while the Refinance Index fell 7.3%.

Thursday:

Thursday's trade featured a negative bias after Wednesday's all-time high for the S&P 500 (-0.4%). The major indices made a sharp move lower right out of the gate, driven by consolidation efforts and profit-taking. However, there was a steady climb off session lows in the afternoon trade, reflecting an ongoing inclination to buy on any weakness.

The S&P 500 traded down as much as 1.0% and closed with a 0.4% decline.

Disappointing fiscal Q1 and full-year guidance from Walmart (WMT) contributed to the early selling interest. It was the worst performing stock in terms of percentage in the Dow Jones Industrial Average and in the S&P 500 consumer staples sector (-1.0%).

Reviewing Thursday's economic data:

• Weekly Initial Claims 219K (Briefing.com consensus 217K); Prior was revised to 214K from 213K, Weekly Continuing Claims 1.869 mln; Prior was revised to 1.845 mln from 1.850 mln
  • The key takeaway from the report is that it covers the period in which the household survey for the employment report is conducted, and with the continued low level of initial jobless claims, economists are apt to be expecting a fairly solid increase in February nonfarm payrolls.
• February Philadelphia Fed Index 18.1 (Briefing.com consensus 20.5); Prior 44.3
  • The key takeaway from the report is that new order activity decreased from January while the prices paid index and prices received index both increased from January.
• January Leading Indicators -0.3% (Briefing.com consensus 0.0%); Prior was revised to 0.1% from -0.1%

Friday:

The stock market logged sharp declines in a broad-based retreat on above-average volume on this options expiration day. The major indices all settled near their worst levels of the day, which left the S&P 500 just above its 50-day moving average (6,010) with a 1.7% loss.

Concerns over growth and valuations drove consolidation activity and profit-taking interest.

Fallout in shares of UnitedHealth (UNH) following a Wall Street Journal report that the DOJ has launched a civil fraud investigation into UNH's Medicare Advantage billing practices also weighed on the market.'

Reviewing Friday's economic data:

• February S&P Global US Manufacturing PMI - Prelim 51.6; Prior 51.2
• February S&P Global US Services PMI - Prelim 49.7; Prior 52.9
• January Existing Home Sales 4.08 mln (Briefing.com consensus 4.06 mln); Prior was revised to 4.29 mln from 4.24 mln
  • The key takeaway from the report is that existing home sales are being suppressed by affordability constraints that are rooted in elevated home prices, which are tied to limited inventory, and elevated mortgage rates.
• February Univ. of Michigan Consumer Sentiment - Final 64.7 (Briefing.com consensus 67.8); Prior 67.8
  • The key takeaway from the report is that the weakening in sentiment cut across groups by age, income, and wealth, and was attributed largely to worries about imminent price increases driven by tariff actions.