Weekly Market Recap (Jul 22-26): A Wild Week in the Markets, But Next Week Might Be Wilder!
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 mostly down for the week, with the S&P 500 down -0.8%, the Nasdaq -2.1%, but the Dow Jones up 0.8%. Utilities (+1.5%) and Health Care (+1.4%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive. 5,500 is the next resistance, while 5,380 is support.
3. The earnings season is well under way and 206 companies from the S&P 500 index have released their Q2 results, with 79% beating estimates. Earnings are expected to be up 12% in Q2 2024 and 11% in 2024.
4. Market sentiment is at the "Neutral" level (45) as measured by CNN’s Fear & Greed indicator, while VIX is at a medium value of 16.
5. Earnings reports from Apple, Microsoft, Meta and Amazon, as well as the Fed meeting and the Non-Farm Payroll report are scheduled for next week.
My take:
Markets closed with a second consecutive red week. On Wednesday, the S&P 500 witnessed its worst daily loss since December 2022. While we saw a bounce after, it wasn't enough to fully recover. The S&P 500's momentum remains negative short-term, but not everything is gloomy when we scratch the surface. A majority of stocks and sectors were on the rise last week. We saw more 1-year highs than lows, and most stocks are in a short-term uptrend. However, the rotation out of tech continues to weigh heavily on the index. The technology sector was down another 2% after a 5% decline the previous week. And as long as mega caps are not finding some support, the index will continue to struggle.
Looking ahead, we have another wild week, with 4 of the Mag 7 reporting earnings and the Fed meeting. While it could be challenging to navigate, I will focus on key levels, particularly the 21-day EMA, my favorite short-term trend line, currently slightly above 5,500, and the 5,380-5,400 area, an important support zone from which we bounced this week. I will be looking for a move in either direction of this range.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 7 of the 11 S&P 500 sectors have achieved gains. Utilities led the way, rising by 1.5%. By contrast, Consumer Cyclical was the weakest, falling by -2.8%.
Year-to-date, all the sectors have seen positive results. Financials has been the most successful sector, with a 16% gain. On the other hand, Real Estate has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 61% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Mohawk Industries, Inc. (MHK, 25%)
3M Co. (MMM, 22%)
Bristol-Myers Squibb Co. (BMY, 18%)
Meanwhile, the worst-performing stocks were:
Lamb Weston Holdings Inc (LW, -27%)
Edwards Lifesciences Corp (EW, -28%)
Dexcom Inc (DXCM, -43%)
In addition, 78 stocks within the S&P 500 reached a new 52-week high, while 12 set new lows, indicating that the momentum is on the upside. Most of the highs this week came from the Financial sector.
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 9 and 30-week exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
9-week EMA is above the 30-week EMA: 🟢
Price is trading above the 9-week EMA: 🟡
Price is trading above the 30-week EMA: 🟢
The 9-week EMA trend line is rising: 🟢
The 30-week EMA trend line 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
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 flat over the past month, up 8% in the last three months, and is trading 4% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 75% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 67% of the stocks are trading above their 20-day SMA, down by 2 points compared to the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on 4-hour and 1-day charts is negative, with the index trading price below its 21-period exponential moving average.
Key levels: The next resistance level is 5,500. On the other hand, the next support areas are at 5,380.
3. Momentum Analysis of the Week
This week's momentum analysis focuses on the S&P 500 sectors' trends. 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 Health Care and Real Estate sectors as having the best relative momentum this week.
EARNINGS RECAP
1. Q2 and Full Year 2024 Expected EPS & Revenue Growth
Q2 2024 earnings for the S&P 500 are expected to be up 12%. Excluding the energy sector, the figure is +13%.
Earnings are projected to grow by 11% in 2024, higher than the 9% growth seen on average over the last decade. In the past four weeks, 48% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 20.8, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
206 companies from the S&P 500 index have released their Q2 2024 earnings, with 79% posting higher EPS than expectations. This is in line with the previous four-quarter average of 79% and higher than 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, 43% of the respondents had a bullish outlook on the stock market, decreasing by 10 points from the previous week.
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 increased from 6.5 to 6.9, a bullish sentiment reading.
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 45 or a “Neutral” level, down from 49 last Friday.
THE WEEK AHEAD
1. Economic Calendar
We have a busy week ahead on the economic front. The Non-Farm Payroll report is expected on Friday. However, all eyes will be on the Federal Reserve meeting. Notably, markets will seek confirmation that the central bank is ready to start cutting rates in the next meeting in September.
2. Earnings Calendar
Earnings season continues next week, and 171 companies from the S&P 500, including Apple, Microsoft, Meta and Amazon, 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.
Every week, I share my analysis of 1 stock reporting earnings in the coming days, focusing on implications for long-term investors. This week, I prepared an in-depth overview of Apple ($AAPL). In this post, I break down key data points around AAPL’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions. Check out the post and learn why I gave a ”HOLD” rating to Apple.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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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.
Nice job as usual
Great analysis. What sectors do you think will grow for the second half of the year? I don’t have any reits, I wonder if it makes sense to get some people they are undervalued and lagging