Weekly Market Recap (Jan. 23 - 27)

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

Jan 28

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.

I hope you enjoy this week's edition and find it helpful. If you like what you see, please share it with your network on social media and, if you haven't already, subscribe to our email updates.

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 2.5%, the Dow Jones 1.8%, and the Nasdaq 4.7%. Communication Services (+4.1%) and Consumer Cyclical (+6.4%) were the best-performing sectors.
2. The stock market has risen this week due to better-than-anticipated Q4 earnings reports and economic data, suggesting that a soft landing is possible.
3. The long-term trend for the S&P500 is improving and could soon signal that the bear market is truly behind us. Regarding specific levels to watch, 4,080-4,100 (the December high) is a significant resistance.
4. The earnings season is now well underway, and 143 companies from the S&P 500 index have released their Q4 results, with 67% beating estimates. Earnings are expected to fall 3% in Q4 2022 and rise 3% in 2023.
5. Earnings reports from Apple, Alphabet, and Amazon are scheduled for next week, along with the FED interest rate decision and the release of the job report for January.

My take:

The index has finally broken out of its downtrend channel, and it must hold this level, as failed breakouts often result in a significant decline. Despite the current upward momentum, exercising caution during this upcoming week is essential, which will bring several market catalysts and increased volatility. Next week will get us earnings announcements from technology giants, the Federal Reserve's interest rate decision, and the job report's release. Investors will closely monitor these events for signs that the economy may avoid a severe recession and that the bear market may be over.

PERFORMANCE RECAP

1. SP500 Sector Performance

Over the week, 9 of the 11 S&P 500 sectors had achieved gains. Consumer Cyclical led the way, rising by 6.4%. By contrast, Health Care was the weakest, falling by 0.8%.

Year-to-date, 8 sectors have seen positive results. Communication Services has been the most successful sector, with a 15% gain. On the other hand, the Consumer Defensive sectors have been trailing behind.

2. S&P 500 Weekly Heat Map

Over the last five trading days, only 74% of the stocks in the S&P 500 index have risen in value.

The best-performing stocks were:

Tesla, Inc. (TSLA, 33%)
Western Digital Corporation (WDC, 17%)
Seagate Technology Holdings plc (STX, 16%)

Meanwhile, the worst-performing stocks were:

NextEra Energy, Inc. (NEE, -8%)
Hasbro, Inc. (HAS, -7%)
Xylem Inc. (XYL, -7%)

In addition, 3 stocks within the S&P 500 reached a new 52-week low, while 38 set new highs.

MARKET TRENDS & MOMENTUM

1. S&P 500 Long-Term Trend

The long-term trend for the S&P500 is improving and could soon signal that the bear market is truly behind us. 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

The S&P 500 has been attempting to break out of the downtrend channel that began in January 2022 for the better part of the last two weeks, messing with our nerves. We have finally moved above these trend lines and must maintain that position. A failed breakout usually results in sharp moves to the downside.

Regarding specific levels to watch, 4,080 (the December high) is a significant resistance. On the other hand, 3,720-60 is a key support range.

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&P 500 sectors and identify those likely to outperform.

This week is Materials and Industrials sectors' turn to shine, and I encourage fellow momentum traders to investigate these sectors and the best-performing stocks within them.

While the hard-beaten sectors of 2022, like Techonology or Communication Services, are making a comeback this month, we are still far from an actual long-term trend change.

EARNINGS RECAP

1. Earnings Season Summary

143 companies from 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 76%.

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 3%, 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 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 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, 37% of the respondents had a bearish outlook on the stock market, a 4-point increase from the previous week. The market sentiment is close to historical levels but still tipping 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 the form of a score ranging from 0 (extremely bearish) to 10 (extremely bullish)

The indicator rose from 3.5 to 3.7 and continues to show an improvement in sentiment among professional investors.

THE WEEK AHEAD

1. Economic Calendar

Next week, the spotlight will be on the FED's interest rate, for which the market widely expects a 25bps rate hike. We will also get an update on the job market's strength with the Nonfarm Payroll report for January.

2. Earnings Calendar

107 companies from the S&P 500, including Apple, Alphabet, and Amazon, are set to report their quarterly earnings next week.

3. Next Week’s Earnings Watchlist

Thank you for reading my weekly market recap! I hope you found it helpful in understanding the stock markets better. If you did, please share this post with your friends and followers.

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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.