Weekly Market Recap (Aug 28 - Sep 1)
Everything you need to know about last week's markets performance and what to expect next
Dear subscribers,
Welcome to our weekly market recap!
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SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were up for the week, with the S&P 500 up 2.5%, the Nasdaq 3.3%, and the Dow Jones 1.4%. Materials (+3.7%) and Technology (+4.4%) were the best-performing sectors.
2. The stock indices were up after further signs of easing inflation and slightly lower yields.
3. The long-term trend for the S&P 500 remains positive, and the next significant resistance is at 4,600, while support is at 4,450.
4. The Q2 earnings season is almost over, and 497 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 report from Kroger is scheduled for next week, as well as the latest reading of the Purchasing Managers’ Index.
My take:
The S&P 500 posted its second consecutive positive week and had its best weekly performance since June. Momentum appears to have shifted back to the upside, and in particular, reclaiming the 4,450 resistance level was a positive development. We may see some consolidation with a relatively quiet week ahead, shortened by Labor Day on Monday, and no significant earnings or economic reports due.
As always, letting the market prove itself and focusing on key levels is important. Currently, I'm watching for a break above 4,600, which is the 2023 high, while hoping that the index maintains support at 4,450. The range between these two levels could be a chopping zone, offering little insight into the market's direction.
Once we clear this resistance, the natural course may be to test the S&P 500's all-time high at 4,800. However, as this summer has shown, the journey to new highs could be challenging and may further test our resilience.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 8 of the S&P 500 sectors have achieved gains. Technology led the way and rose by 4.4%. By contrast, Utility was the weakest, and fell by 1.6%.
Year-to-date, 7 sectors have seen positive results. Technology has been the most successful sector, with a 42% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 76% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Western Digital Corporation (WDC, 16%)
Seagate Technology Holdings plc (STX, 14%)
Catalent, Inc. (CTLT, 12%)
Meanwhile, the worst-performing stocks were:
Warner Bros. Discovery, Inc. (WBD, -6%)
Walgreens Boots Alliance, Inc. (WBA, -7%)
Dollar General Corporation (DG, -16%)
In addition, 40 stocks within the S&P 500 reached a new 52-week high, while 24 set new lows, indicating the momentum is back to the upside.
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 is giving a mixed signal at the moment.
2. S&P 500 Short-Term Outlook and Key Levels
In last week’s recap, I mentioned I was looking for the S&P 500 to break off the 4,450 resistance as a sign we were done with the downtrend. The index managed to do that on Tuesday and rallied back above 4,500 in a highly positive week.
While we may get little action in the short week ahead, the game plan is easy for the coming weeks. As long we hold 4,450, I am looking for the index to retest the 2023 highs at 4,600. After that, a successful break above 4,600 would set the stage for testing new all-time highs at 4,800, but it might take some time before getting there. On the other end, a break below 4,280-4,300, June’s breakout level, would be a setback to the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about seasonality, as we started the month of September, the worst month of the year over the past 20 years. The S&P500 has been down 45% of the time, for an average -0.5% return.
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EARNINGS RECAP
1. Earnings Season Summary
497 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 +4%.
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, 33% of the respondents had a bullish outlook on the stock market, a 1-point increase from the previous week. The investors' bullish sentiment remain below historical average for the 3rd consecutive week.
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 rose from 4.1 to 4.4, the highest level in 5 months.
THE WEEK AHEAD
1. Economic Calendar
The week ahead will be short and potentially quiet, with Labor Day on Monday and no significant economic report expected. I will keep an eye on the PMI reading released on Wednesday for more insights on the economy's health.
2. Earnings Calendar
The earnings season continues in the week ahead, and 2 companies from the S&P 500, including Kroger, 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 Kroger ($KR). In this post, I break down key data points around Kroger’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.
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