Weekly Market Recap (Jan. 2 - 6)
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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Thank you for joining us, and let's get started!
SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were positive, with the S&P 500 up 1.5%, the Dow Jones 1.5%, and the Nasdaq 1.0%. Communication Services (+5%) and Material (+3.5%) were the best-performing sectors.
2. Friday’s job report seemed to have boosted sentiment by raising the prospect that the Federal Reserve will be able to fight inflation without causing a severe recession. Nonfarm payrolls came in above projections at +223,000 in December, while, more importantly, wage growth has slowed.
3. The long-term trend remains negative for the S&P 500 based on the weekly chart. If we can maintain the positive momentum from this Friday, it could signal a bullish trend for the upcoming weeks, with key resistance levels at 3,900 and then 4,080.
4. All the 500 companies on the S&P 500 index have released their Q3 earnings, with 71% beating estimates. Earnings per share (EPS) are expected to fall 1.5% in Q4 2022 and rise 4% in 2023.
5. Earnings reports from Bank of America, JP Morgan and Unitedhealth Group are scheduled for next week, along with the release of the latest inflation report with the CPI.
My take:
Despite the market's strong performance on Friday, caution is still warranted for the coming weeks. The market has been stuck in a downtrend channel since early 2022, with attempts to break out thus far unsuccessful. The upcoming week will be a significant test for the market, with the December CPI report expected on Thursday and major banks kicking off the Q4 earnings season on Friday. If we can successfully digest this critical information and finally break out of the downtrend channel, I will turn more optimistic about the market outlook.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 10 of the 11 S&P 500 sectors had achieved gains. Communication Services led the way, rising by 5.0%. By contrast, Healthcare was the weakest, falling by 0.1%.
In the past year, only 3 sectors have seen positive results. Energy has been the most successful sector, with a 43% gain. On the other hand, the Communication Services and Consumer Cyclical sectors have experienced the most losses this year.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 75% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Warner Bros. Discovery, Inc. (WBD, 20%),
Western Digital Corporation (WDC, 18%)
Wynn Resorts, Limited (WYNN, 15%)
Meanwhile, the worst-performing stocks were:
Molina Healthcare, Inc. (MOH, -9%)
Constellation Brands, Inc. (STZ, -9%)
Cigna Corporation (CI, -8%)
In addition, 12 stocks within the S&P 500 reached a new 52-week low, while 19 set new highs.
MARKET TRENDS & MOMENTUM
1. S&P 500 Long-Term Trend
The long-term trend for the S&P500 is negative, according to my analysis. 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 consistently 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
The S&P 500 has been consolidating for the past two weeks, which often indicates a significant market shift is imminent. If we can maintain the positive momentum from Friday's performance, it could signal a bullish trend for the upcoming weeks.
Regarding specific levels to watch, a sustained break above 3,900 and then 4,080 (the December high) would be positive indicators. On the other hand, 3,720-60 is a key support range to watch.
3. S&P 500 Sectors Momentum
My stock-picking strategy is centered around momentum analysis. 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 S&P500 sectors and identify those likely to outperform.
This week is Industrials and Healthcare’s turn to shine, and I would encourage fellow momentum traders to investigate these sectors and the best-performing stocks within them.
EARNINGS RECAP
1. Earnings Season Summary
All the companies from the S&P 500 have released their Q3 2022 earnings, with 71% posting higher EPS than expectations. However, this is lower than the previous four-quarter average of 78%.
Companies are reporting earnings that are 4% higher than expected on average, much lower than the four-quarter average of 7%.
Among the 11 S&P 500 sectors, Energy had the highest rate of earnings surprise.
2. Expected EPS & Revenue Growth
Analysts predict that earnings for the S&P 500 will decline by 1.5% in Q4 2022. Excluding the energy sector, the figure falls to -6%.
The earnings growth rate for 2023 is projected at 4.4%, lower than the 9% average seen over the last decade. Earnings are expected to increase year-over-year in 8 of the 11 sectors, with the Consumer Discretionary and Industrials sectors leading the way. On the other hand, the Energy and Materials sectors are projected to see a decrease.
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 used in combination 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, 42% of the respondents had a bearish outlook on the stock market, a 6-point decrease from the previous week. The overall market sentiment still leans towards bearishness.
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 a form of a score ranging from 0 (extremely bearish) to 10 (extremely bullish)
The indicator is currently at 2.9, indicating a primarily bearish sentiment among professional investors.
THE WEEK AHEAD
1. Economic Calendar
Next week, the spotlight will be on inflation, with the CPI due on Thursday. The market expects year-over-year inflation to come in at 6.5%, down from 7.1% the previous month.
2. Earnings Calendar
9 companies from the S&P 500, including Bank of America, JP Morgan, and UnitedHealth Group, are set to report their quarterly earnings next week for the start of the Q4 earnings season.
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.