Weekly Market Recap (Feb. 20 - 24)
Everything you need to know about last week's markets performance and what to expect next
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 sharply down, with the S&P 500 down 2.7%, the Dow Jones -3.0%, and the Nasdaq -3.1%. Energy (+0.2%) and Materials (-0.1%) were the best-performing sectors.
2. Higher-than-anticipated inflation figures raised concerns the Federal Reserve will need to hike interest rates further.
3. The long-term trend for the S&P500 is again mixed and could signal more pain ahead if we lose key support levels, starting with 3,940.
4. The earnings season is now well underway, and 465 companies from the S&P 500 index have released their Q4 results, with 68% beating estimates. Earnings are expected to fall 3% in Q4 2022 and rise 2% in 2023.
5. Earnings reports from Broadcom, Salesforce, and Costco are scheduled for next week, along with the release of the Purchasing Managers’ Index (PMI).
My take:
As expected after a period of consolidation, the market sharply moved, unfortunately, with a downside resolution. Inflation remains high and could lead to higher interest rates for a more extended period than expected.
Technically, the S&P 500 is at a crossroads, hovering near several important levels, including the 200-day moving average, the downtrend channel from January 2022, and the psychological level of 4,000. How the index reacts around these levels in the coming weeks will clarify whether this is a bear market rally or the start of a new bull market. While I have leaned towards optimism so far, I remain cautious until a more evident trend and direction emerge, and I urge you to do the same.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, only 1 of the 11 S&P 500 sectors had achieved gains. Energy led the way, rising by 0.2%. By contrast, Consumer Cyclical was the weakest, falling by 4.5%.
Year-to-date, 7 sectors have seen positive results. Consumer Cyclical has been the most successful sector, with an 11% gain. On the other hand, Utilities have been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, only 14% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
EQT Corporation (EQT, 9%)
Linde plc (LIN, 7%)
General Mills, Inc. (GIS, 7%)
Meanwhile, the worst-performing stocks were:
Keysight Technologies, Inc. (KEYS, -16%)
Domino's Pizza, Inc. (DPZ, -17%)
Moderna, Inc. (MRNA, -19%)
In addition, 10 stocks within the S&P 500 reached a new 52-week low, while 14 set new highs. The momentum remains on the upside but slowing down.
MARKET TRENDS & MOMENTUM
1. S&P 500 Long-Term Trend
The long-term trend for the S&P500 is mixed again. 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 three conditions:
Price is trading above the EMA9 and EMA30: 🔴
EMA9 is above the EMA30: 🟢
Both moving averages are rising: 🟡
I also use MACD as an additional tool to detect trend changes. The MACD is currently higher than its signal line, a positive indication for the index.
2. Short-term outlook and key levels
I was expecting markets to move sharply this week following 2 weeks of consolidation, and unfortunately, the resolution turned out to be on the downside. The S&P 500 is at a crossroads, hovering near several important levels, including the 200-day moving average, the downtrend channel from January 2022, and the psychological level of 4,000. How the index reacts around these levels in the coming weeks will clarify whether this is a bear market rally or the start of a new bull market.
Regarding specific levels to watch, 4,000 is an immediate resistance, and the ultimate one is 4,300, which would mark the official start of a new bull market. On the other hand, 3,940 (200-day moving average) is a crucial support range to defend.
3. Momentum Analysis of the Week
This week's momentum analysis is about Asset Class ETFs' trends. I employ various performance metrics and technical indicators, which are then processed by my proprietary algorithm. I use this model here to rank the different markets' ETFs and identify those likely to outperform.
None of the ETFs I track here is showing powerful momentum. Stock Indexes and Bitcoin are coming back, but they still have much overhead resistance to overcome.
For daily updates and content on momentum trading, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
More than 90% of the S&P 500 have released their Q4 2022 earnings, with 68% posting higher EPS than expectations. However, this is lower than the previous four-quarter average of 73%.
2. Expected EPS & Revenue Growth
Analysts predict that earnings for the S&P 500 will decline by 3% in Q4 2022. Excluding the energy sector, the figure falls to -7%.
The earnings growth rate for 2023 is projected at +2%, lower than the 9% average seen over the last decade. Earnings are expected to increase year-over-year in 7 of the 11 sectors, with the Consumer Cyclical and Financials 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 to get 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, 22% of the respondents had a bullish outlook on the stock market, a 12-point decrease from the previous week. The investors' bullish sentiment has dropped again significantly below historical levels.
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 fell from 4.4 to 4.2 but continues to show an improvement in sentiment among professional investors.
THE WEEK AHEAD
1. Economic Calendar
The upcoming week will be light regarding economic data in the US, and the focus will be on the PMI for February. The Purchasing Managers' Index (PMI) is a survey-based indicator of purchasing managers in various industries, for which a reading above 50 indicates growth, and below 50 indicates contraction.
2. Earnings Calendar
26 companies from the S&P 500, including Broadcom, Salesforce, and Costco, are set to report their quarterly earnings next week.
3. Next Week’s Earnings Watchlist
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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.