Weekly Market Recap (Aug 19-23): Another Strong Week for Bulls. Will Nvidia Earnings Ruin the Party?
Everything you need to know about last week's markets performance and what to expect next.
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SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were positive this week, with the S&P 500 up 1.5%, the Nasdaq 1.4%, and the Dow Jones 1.3%. Real Estate (+3.6%) and Consumer Cyclical (+2.6%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive, and the short-term momentum is also positive. 5,670 is the next resistance, while 5,560 is support.
3. The earnings season is well under way and 477 companies from the S&P 500 index have released their Q2 results, with 79% beating estimates. Earnings are expected to be up 13% in Q2 2024 and 10% in 2024.
4. Market sentiment is at the "Neutral" level (53) as measured by CNN’s Fear & Greed indicator, while VIX is at a low value of 16.
5. Earnings reports from Nvidia and Salesforce, as well as the PCE Price Index are scheduled for next week.
My take:
Aside from Thursday's (trappy) sell-off, it was another strong week for the bulls. The Fed meeting minutes and Chairman Powell's speech at the Jackson Hole Symposium further cemented that rate cuts are coming, most likely as soon as the Fed's September meeting. Until then, the market will likely trend higher and attempt to reach a new all-time high. It doesn't mean we are not vulnerable to receiving a bearish piece of news and seeing a sell-off, especially as the recent rally seems over-extended.
We have two big events next week, with the PCE price index—the Fed's preferred measure of inflation—and Nvidia's earnings report. While predicting how the index will trade around these catalysts is impossible, the best approach is to zoom out and defer to the trend. And despite some bumps along the way, the trend has been resolutely positive over the past 18 months and remains definitively so now.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 10 of the 11 S&P 500 sectors have achieved gains. Real Estate led the way, rising by 3.6%. By contrast, Energy was the weakest, falling by -0.1%.
Year-to-date, all the sectors have seen positive results. Communication Services has been the most successful sector, with a 20% gain. On the other hand, Consumer Cyclical has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 83% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Keysight Technologies Inc (KEYS, 15%)
Albemarle Corp. (ALB, 14%)
Builders Firstsource Inc (BLDR, 13%)
Meanwhile, the worst-performing stocks were:
Intuit Inc (INTU, -5%)
Walgreens Boots Alliance Inc (WBA, -6%)
Franklin Resources, Inc. (BEN, -8%)
In addition, 79 stocks within the S&P 500 reached a new 52-week high, while 2 set new lows. Most of the highs this week came from the Financial sector.
MARKET TRENDS & MOMENTUM
1. S&P 500 Long-Term Trend
The long-term trend for the S&P 500 is positive. I base this evaluation on the 9 and 30-week exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
9-week EMA is above the 30-week EMA: 🟢
Price is trading above the 9-week EMA: 🟢
Price is trading above the 30-week EMA: 🟢
The 9-week EMA trend line is rising: 🟢
The 30-week EMA trend line is rising: 🟢
I also use the MACD as an additional tool to detect trend changes. The MACD is below its signal line, a negative indication for the index.
2. S&P 500 Technical Analysis
Healthy bull markets typically see the index set several new highs, broad market participation, and ascending trend lines. That's why I've created a four-part scorecard – a straightforward tool to give us a comprehensive view of these essential health indicators.
Momentum: The index is flat over the past month, up 5% in the last three months, and is trading 2% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 77% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 88% of the stocks are trading above their 20-day SMA, up from 75% the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on the 1-day and 4-hour charts is positive, with the index trading above its 21-period exponential moving average.
Key levels: The next resistance level is 5,670. On the other hand, the next support areas are at 5,560, followed by 5,500.
3. Momentum Analysis of the Week
This week's momentum analysis is about Market Segment trends. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these various segments of the market and identify potential outperformers. Based on this approach, I've identified Real Estate and Gold as having the best relative momentum currently.
EARNINGS RECAP
1. Q2 and Full Year 2024 Expected EPS & Revenue Growth
Q2 2024 earnings for the S&P 500 are expected to be up 13%. Excluding the energy sector, the figure is +14%.
Earnings are projected to grow by 10% in 2024, higher than the 9% growth seen on average over the last decade. In the past four weeks, 57% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21.5, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
477 companies from the S&P 500 index have released their Q2 2024 earnings, with 79% posting higher EPS than expectations. This is in line with the previous four-quarter average of 79% and higher than the historical average of 67%.
MARKET SENTIMENT
Measures of investor sentiment can be helpful as they provide insight into the views and opinions of professional or individual investors. However, it's important to note that these measures are not perfect predictors of market movements. They should be combined with other indicators and analysis tools for a complete market picture.
1. AAII Sentiment Survey (Individual Investors)
The American Association of Individual Investors (AAII) conducts a weekly survey among its members to gauge their expectations for the stock market over the next six months. The results are published every Wednesday.
According to the most recent AAII survey, 52% of the respondents had a bullish outlook on the stock market, increasing by 9 points from the previous week.
2. BofA Bull & Bear Indicator (Institutional Investors)
The Bank of America Bull-Bear Indicator is a proprietary measure of investor sentiment developed by Bank of America. It is based on a survey of fund managers and institutional investors, and it tracks the percentage of respondents who are bullish, bearish, or neutral on the stock market. Results are published in the form of a score ranging from 0 (extremely bearish) to 10 (extremely bullish)
The indicator decreased from 6.3 to 6.1, a slightly bullish sentiment reading.
3. CNN Fear & Greed Index (Technical)
The CNN Fear & Greed Index is a daily measure that analyzes seven market indicators to assess how emotions influence investors' decisions. The index is scored out of 100 and categorizes results into five stages: Extreme Fear, Fear, Neutral, Greed, and Extreme Greed.
The index closed at 53 or a “Neutral” level, up from 35 last Friday.
THE WEEK AHEAD
1. Economic Calendar
The highlight for the upcoming week will be the Personal Consumption Expenditures (PCE) Price Index on Friday. As the Fed's favored measure of inflation, it plays a pivotal role in shaping interest rate decisions. We will also receive another GDP update for Q2 on Thursday.
2. Earnings Calendar
Earnings season continues next week, and 16 companies from the S&P 500, including Nvidia and Salesforce, are expected to release their quarterly results.
3. Next Week’s Earnings Watchlist
Below is my watchlist of stocks reporting week next week, along with several key indicators I like to review:
Stock Indicators:
Stock performance in the last 3 months.
RSI, where a reading of 70 indicates overbought status and a reading of 30 oversold.
PE ratio, where a reading below 25 indicates a "cheap" valuation and/or low growth expectations.
Stock Price Reactions to Earnings:
1-day Stock Return on Earnings is the stock performance on the earnings release date.
Implied volatility is the expected 1-day stock change after earnings are released, as assessed by the options markets.
Every week, I share my analysis of 1 stock reporting earnings in the coming days, focusing on implications for long-term investors. This week, I prepared an in-depth overview of Nvidia ($NVDA). In this post, I break down key data points around Nvidia’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions. Check out the post and learn why I gave a “HOLD” rating to Nvidia.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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Have a great week!
My Weekly Stock
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The information provided in this newsletter is for informational purposes only and should not be taken as financial advice. Any investments or decisions made based on the information provided in this newsletter are the reader's sole responsibility. We recommend that readers conduct their own research and consult a qualified financial professional before making investment decisions. The author does not assume any responsibility for any losses or damages arising from using the information provided in this newsletter.
Great report per usual, and I agree with your take. Looks like we're setting up for higher prices into the end of the year.