Weekly Market Recap (Feb 5-9): The S&P 500 (Effortlessly) Sails Past 5,000. Now What?
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 up for the week, with the S&P 500 up 1.4%, the Nasdaq up 2.3%, and the Dow Jones flat. Technology (+2.8%) and Consumer Cyclical (+1.4%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,000 is the critical level to monitor next week.
3. The earnings season is well underway, and 332 companies from the S&P 500 index have released their 4th quarter results, with 81% beating estimates. Earnings are expected to be up 9% in Q4 2023 and 10% in 2024.
4. Market sentiment is at the "Extreme Greed" level (78) as measured by the Fear & Greed indicator, while VIX remains low at 13.
5. Earnings reports from Coca-Cola Co. and Cisco Systems, Consumer Price Index (CPI), Producer Price Index (PPI), and Retail Sales reports are scheduled for next week.
My take:
The markets celebrated their 5th consecutive week of gains, extending their impressive run to 14 wins out of the last 15 weeks. The market momentum remained strong, helped by another round of robust corporate earnings. After two-thirds of the S&P 500 index having reported, Q4 2024 earnings are now projected to grow by 9%, significantly outpacing the 5% growth forecasted at the start of the earnings season in early January.
I expect heightened volatility next week, with several economic reports on the horizon. The market's response to Tuesday's CPI data will be particularly telling, especially if the S&P 500 retest the 5,000 level.
At the beginning of the year, I anticipated 2 outcomes in 2024: 1) that the S&P 500 will set a new all-time high, potentially breaking 5,000, and 2) that we will experience a correction of 10% or more. Well, the 1st part is done, and I still expect the second to happen at some point. A pullback would actually be healthy in my view and set the stage for the next phase of this bull market.
However, as always, my focus is not on guessing the exact highs or lows but rather on the overall trend and critical levels. And for now, the trend remains decisively positive, especially if we can sustain the move above 5,000.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 7 of the 11 S&P 500 sectors have achieved gains. Technology led the way and rose by 2.8%. By contrast, Utilities was the weakest and fell by -2%.
Year-to-date, 7 sectors have seen positive results. Communication Services has been the most successful sector, with a 9% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Top & Worst Performers
Last week, 53% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Enphase Energy Inc (ENPH, 20%)
Ralph Lauren Corp (RL, 18%)
Monolithic Power System Inc (MPWR, 18%)
Meanwhile, the worst-performing stocks were:
Expedia Group Inc (EXPE, -13%)
Air Products & Chemicals Inc. (APD, -15%)
FMC Corp. (FMC, -16%)
In addition, 107 stocks within the S&P 500 reached a new 52-week high, while 14 set new lows, indicating the momentum remains on the upside.
The Industrials sector has seen the largest number of new highs this week, while most of the lows were in Materials.
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 the MACD as an additional tool to detect trend changes. The MACD is above its signal line, a positive indication for the index.
2. S&P 500 Technical Analysis
Robust and 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 up 5% over the past month and 15% in the last three months, now trading just 0.1% shy of its 52-week high.
Breadth: Market participation remains healthy in the long term, as 69% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 57% of stocks are trading above their 20-day SMA, flat compared to the previous week.
Trends: The 4-hour and 1-day charts remain positive. This week, the index broke a new all-time high again and, for the first time, closed above 5,000.
Key levels: The critical level to monitor next week is undoubtedly the 5,000 mark. The reaction at this threshold will be pivotal in determining the market's direction and sentiment in the future. Regarding a downside scenario, 4,800 is support, while 4,680, early Jan's low, is the level to hold if we see a more substantial pullback.
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3. Momentum Analysis of the Week
This week's momentum analysis focuses on the trends of the S&P 500 sectors. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these sectors and identify potential outperformers. Based on this approach, I've identified the Technology and Industrial sectors as having the best relative momentum.
EARNINGS RECAP
1. Q4 and 2024 Expected EPS & Revenue Growth
Q4 2023 earnings for the S&P 500 are expected to be up 9%. Excluding the energy sector, the figure is +12%.
The earnings are projected to grow by 10% in 2024, higher than the 9% growth seen on average over the last decade. In the past 4 weeks, 50% of earnings revisions done by analyst were to increase their outlook.
The forward P/E ratio is 20.6, higher than the average over the past five and ten years.
2. Q4 Earnings Season Summary
332 companies from the S&P 500 index have released their Q4 2023 earnings, with 81% posting higher EPS than expectations. This is higher than the previous four-quarter average of 76% and 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, 49% of the respondents had a bullish outlook on the stock market, flat from the previous week. The bullish sentiment is largely above the historical average.
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 rose from 6.1 to 6.8, behind strong inflows to risky assets.
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 78, or the “Extreme Greed” level, up from 67 last Friday.
THE WEEK AHEAD
1. Economic Calendar
This week is filled with critical economic reports, especially regarding the inflation narrative. The Consumer Price Index (CPI) report, a key measure of inflation from the consumer perspective, is scheduled for release on Tuesday. The Producer Price Index (PPI) report will come out on Friday, reflecting inflation from the producer's standpoint. The Retail Sales data, an important indicator of consumer confidence and spending, will be out on Thursday, critically gauging the economic momentum.
Here is the evolution of CPI (year-over-year) in the past 12 months, along with the corresponding performance of the S&P 500 on the day the report was released.
2. Earnings Calendar
The earnings season continues next week, and 45 companies from the S&P 500, including Coca-Cola Co. and Cisco Systems, 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.
It is helpful to analyze these indicators to understand better the stocks before their earnings.
Every week, I share a deep dive into 1 stock reporting earnings in the coming days. I prepared an in-depth overview of Coca-Cola Co. ($KO) this week. In this post, I break down key data points around Coca-Cola’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.
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My Weekly Stock
DISCLAIMERS
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.
Amazing recap as always! 🔥👏
For anyone interested, here are my CPI estimates:
https://open.substack.com/pub/arkominaresearch/p/jan-2024-cpi-estimates?r=1r1n6n&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true