Weekly Market Recap (Aug 21-25)

Everything you need to know about last week's markets performance and what to expect next

Aug 26, 2023

Dear subscribers,

Welcome to our weekly market recap!

Navigating the markets can be overwhelming, but I'm here to provide you with the latest updates and actionable insights to help you succeed. Whether you're an experienced investor or just starting out, my recap has something for everyone.

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SUMMARY

Here are this week's highlights and what to look out for next:

1. The markets were mostly up for the week, with the S&P 500 up 0.8%, the Nasdaq up 2.3%, but the Dow Jones down 0.5%. Consumer Cyclical (+1.2%) and Technology (+2.3%) were the best-performing sectors.
2. The stock indices rebounded after another strong earnings report from Nvidia, and despite the Fed Chair warning that further interest hikes might be on the horizon.
3. The long-term trend for the S&P 500 remains positive, and the next significant resistance is at 4,450, while support is at 4,280.
4. The Q2 earnings season is almost over, and 485 companies from the S&P 500 index have already released their 2nd quarter results, with 79% beating estimates so far. Earnings are expected to be down 3% in Q2 2023 and up 2% in 2023.
5. Earnings reports from Broadcom and Salesforce are scheduled for next week, and the latest updates on GDP, inflation, and the Non-Farm Payroll report.

My take:

As I anticipated, a rebound arrived after three consecutive weekly losses; however, it proved to be a notably volatile and challenging week. Two primary catalysts shaped the week's dynamics: Nvidia's earnings and Powell's speech following the Jackson Hole Symposium. Interestingly, although Nvidia's report vastly exceeded expectations, the market experienced a sell-off. Conversely, Fed Chair Powell hinted at upcoming rate hikes, prompting a market rally. It illustrates the complexity of trading, particularly around economic events, Fed meetings, or earnings reports. Despite how tempting it may be, I personally avoid trading during these times, instead focusing on key levels and a long-term outlook.

Speaking of which, the critical levels highlighted last week remain relevant. The S&P500 once again faltered at the 4450 resistance; reclaiming it is crucial for me to shift toward a more favorable short-term outlook. The next critical support lies at 4,280, the breakout level from June – a level I'm keen to see holding. While I can't predict which direction we will go next week, we have many economic reports released, which could be catalysts for a move above or below these pivotal levels.

In the longer term, I'm watching for a breakthrough above 4,600, the level we struggled with this summer. This milestone is essential for me to gain confidence that we're back on track toward achieving new highs for the S&P 500.

PERFORMANCE RECAP

1. SP500 Sector Performance

Over the week, 6 of the S&P 500 sectors have achieved gains. Technology led the way and rose by 2.3%. By contrast, Energy was the weakest, and fell by 1.4%.

Year-to-date, 5 sectors have seen positive results. Communication Services has been the most successful sector, with a 36% gain. On the other hand, Utilities has been trailing behind.

2. S&P 500 Weekly Heat Map

Over the last week, 52% of the stocks in the S&P 500 index have risen in value.

The best-performing stocks were:

Tesla, Inc. (TSLA, 11%)
Moderna, Inc. (MRNA, 10%)
Palo Alto Networks, Inc. (PANW, 10%)

Meanwhile, the worst-performing stocks were:

Dollar Tree, Inc. (DLTR, -14%)
Insulet Corporation (PODD, -11%)
Ulta Beauty, Inc. (ULTA, -10%)

In addition, 19 stocks within the S&P 500 reached a new 52-week high, while 29 set new lows, indicating the momentum is to the downside.

The following are the top stocks, ranked by market size, that reached a new high or low in the last 5 days:

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 weekly chart's 9 and 30 exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):

EMA9 is above the EMA30: 🟢
Price is trading above the EMA9: 🟡
Price is trading above the EMA30: 🟢
EMA9 is rising: 🟡
EMA30 is rising: 🟢

I also use MACD as an additional tool to detect trend changes. The MACD just crossed below its signal line, indicating potentially more pain ahead for the index.

2. S&P 500 Short-Term Outlook and Key Levels

As I anticipated, we finally got a bounce, as many indicators I followed signaled we needed a pause in the sell-off. Having said that, it was a very volatile, tricky week to navigate.

We haven’t broken any resistance or support, so the levels I highlighted last week remain very valid. 4,280-4,300 is the next strong support, as it is June’s breakout level. And until we recapture 4,450, we stay on the downtrend. Once we cleared that level, a breakthrough above 4,600 would signal a resumption of the upward trajectory, setting the stage for potentially new all-time highs.

3. Momentum Analysis of the Week

This week's momentum analysis is about Stock Types ETFs' trends. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these various stock categories in the market and identify potential outperformers. Based on this approach, I've identified the Growth and Large-Caps as currently having the best relative momentum.

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EARNINGS RECAP

1. Earnings Season Summary

485 companies from the S&P 500 index have released their Q2 2023 earnings, with 79% posting higher EPS than expectations. This is higher than the previous four-quarter average of 73%, and the historical average of 66%.

2. Expected EPS & Revenue Growth

Q2 2023 earnings for the S&P 500 are expected to be down 3%. Excluding the energy sector, the figure is +3%.

The earnings are projected to be up 2% in 2023, lower than the 9% growth seen on average over the last decade. Earnings are expected to increase year-over-year in 8 of the 11 sectors, with the Consumer Cyclical and Communication Services sectors leading the way. On the other hand, the Energy and Materials sectors are projected to see the worst decline.

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. Individual Investors (AAII)

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 of the survey are published every Wednesday.

According to the most recent AAII survey, 32% of the respondents had a bullish outlook on the stock market, a 4-point decrease from the previous week. The investors' bullish sentiment is now at a 3-month low.

2. Institutional Investors (BofA Bull & Bear Indicator)

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 was at 4.2, a neutral reading.

THE WEEK AHEAD

1. Economic Calendar

The week ahead will bring us several critical economic updates. Wednesday will provide us an update on the Q2 GDP. Inflation will be back in the spotlight on Thursday with the CPI data for the European Union and the PCE Price index, the Fed’s favorite measure of inflation. We will close the week with the Non-Farm Payroll report on Friday.

2. Earnings Calendar

The earnings season continues in the week ahead, and 12 companies from the S&P 500, including Broadcom 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 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" value and/or low growth expectations.
Implied volatility is the expected 1-day stock change after earnings are released, as assessed by the options markets.

It is helpful to analyze these indicators to understand better the stocks before their earnings.

Every week, I share a deep dive into one stock reporting earnings in the coming days. This week, I prepared an in-depth overview of Broadcom Inc. ($AVGO). In this post, I break down key data points around Broadcom Inc.’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.

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Have a great week!

My Weekly Stock

DISCLAIMER

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.