Weekly Market Recap (Jul. 17-21)
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 positive for the week, with the S&P 500 up 0.7%, the Dow Jones 2.1%, and the Nasdaq down 0.6%. Energy (+3.5%) and Healthcare (+3.5%) were the best-performing sectors.
2. The stock indices were mostly positive, as gains in value stocks more than offset weakness at some mega-cap tech/growth stocks.
3. The long-term trend for the S&P 500 is positive, and the next significant resistance is at 4,580, while support is at 4,300.
4. The Q2 earnings season is starting, and 89 companies from the S&P 500 index have already released their 2nd quarter results, with 73% beating estimates so far. Earnings are expected to be down 8% in Q2 2023 and flat in 2023.
5. Earnings reports from Microsoft and Alphabet are scheduled for next week, as is the Fed’s interest rate decision on Wednesday.
My take:
While the week was positive for the S&P500, we witnessed, as expected, an increase in volatility, notably driven by the start of the earnings season. Disappointing earnings from Tesla and Netflix contributed to weakness in the Nasdaq and a rotation to value stocks.
Next week will bring numerous catalysts, including the Fed's interest rate decision, the busiest week of Q2 earnings, significant economic reports, and another inflation report. I anticipate higher volatility and a challenging week for trading. Focusing on critical levels and removing the noise is best in these circumstances. Specifically, I would watch for a solid breakout above 4,580 (this week’s high) or a drop below 4,500 to indicate the trend in the following days.
My view remains unchanged on a longer time frame: I still believe that the S&P 500 will eventually test its all-time high at 4,800 in the coming months. However, it's important to note that a break below the range of 4,280-4,300 would represent a significant setback for the bullish case.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 8 of the S&P 500 sectors have achieved gains. Energy led the way and rose by 3.5%. By contrast, Communication Services was the weakest, and fell by 2.4%.
Year-to-date, 8 sectors have seen positive results. Technology has been the most successful sector, with a 42% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 72% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Zions Bancorporation,
National Association (ZION, 18%)
The Charles Schwab Corporation (SCHW, 14%) KeyCorp (KEY, 13%)
Meanwhile, the worst-performing stocks were:
Discover Financial Services (DFS, -11%)
Omnicom Group Inc. (OMC, -13%)
The Interpublic Group of Companies, Inc. (IPG, -16%)
In addition, 104 stocks within the S&P 500 reached a new 52-week high, while 8 set new lows, indicating the momentum is clearly 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 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 above its signal line, a positive indication for the index.
2. Short-term outlook and key levels
I foresee more volatility next week, especially with so many potential catalysts. In such circumstances, I always prefer to focus on critical levels. Specifically, I'll closely monitor a possible breakout above this week's high at 4,580 or a dip below 4,500, as these moves would provide a clearer indication of the trend in the next few days or weeks.
The long-term, natural target for this rally would be the S&P 500's all-time high of 4,800. On the other hand, if the index falls below the breakout level of 4,280-4,300 from June, it would be a significant setback for the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about the S&P 500 stocks trading the most above or below their 200-day moving average. The 200-day moving average is a powerful indicator that calculates the average price of a stock over the past 200 trading days. It acts like a "smoothing tool," reducing short-term market noise and giving us a clear view of the long-term trend.
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EARNINGS RECAP
1. Earnings Season Summary
89 companies from the S&P 500 index have released their Q2 2023 earnings, with 73% posting higher EPS than expectations. This is in line with the previous four-quarter average of 73%, and higher than the historical average of 66%.
2. Expected EPS & Revenue Growth
Q2 2023 earnings for the S&P 500 are expected to be down 8%. Excluding the energy sector, the figure is -2%.
The earnings are projected to be flat 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, 51% of the respondents had a bullish outlook on the stock market, a 10-point increase from the previous week. The investors' bullish sentiment is at its highest level since April 2021.
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 increased from 3.5 to 3.8, the highest reading in 2023.
THE WEEK AHEAD
1. Economic Calendar
The week ahead will focus on the Federal Reserve, with the central bank’s interest decision expected on Wednesday. We will also receive an update on inflation with the release of the PCE price index and an update on Q2 GDP.
2. Earnings Calendar
One of the busiest weeks of earnings of the Q2 season is ahead of us, and 173 companies from the S&P 500, including Microsoft and Alphabet, 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 Alphabet (GOOGL). In this post, I break down key data points around Alphabet’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.
Great to see carnival and meta 📈. Next PayPal please