Weekly Market Recap (Jul. 31-Aug. 4)

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.

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!

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SUMMARY

Here are this week's highlights and what to look out for next:

1. The markets were negative for the week, with the S&P 500 down 2.3%, the Dow Jones 1.1%, and the Nasdaq 2.9%. Energy (+1.3%) and Consumer Cyclical (-0.7%) were the best-performing sectors.

2. The stock indices posted a down week, driven by an unexpected downgrade of the US credit rating.

3. The long-term trend for the S&P 500 is positive, and the next significant resistance is at 4,600, while support is at 4,450.

4. The Q2 earnings season is well underway, and 422 companies from the S&P 500 index have already released their 2nd quarter results, with 79% beating estimates so far. Earnings are expected to be down 4% in Q2 2023 and up 1% in 2023.

5. Earnings reports from Disney and Eli Lilly are scheduled for next week, as is an update on inflation with the Consumer Price Index report.

My take:

I expected higher volatility for this week with the Q2 earnings season's busiest week, but unfortunately, it was a one-way street with four consecutive daily losses. Friday was particularly tough as the S&P500 surged almost 1%, giving up all gains and finishing below the 4,500 support.

Short-term, we clearly encountered significant resistance at 4,600, and clearing it might take some time to break out from it. While weakness may persist, there's no need to worry at this stage, and remember that pullbacks are a healthy part of the process. And looking to the week ahead, a clearer market direction might not emerge until the CPI report on Thursday.

As always, focusing on the longer time frame is beneficial. From that perspective, I believe that the S&P 500 will eventually test its all-time high at 4,800 in the coming months. However, the last two weeks have shown that the journey to new highs could be challenging.

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PERFORMANCE RECAP

1. SP500 Sector Performance

Over the week, only 1 of the S&P 500 sectors have achieved gains. Energy led the way and rose by 1.3%. By contrast, Utilities was the weakest, and fell by 4.6%.

Year-to-date, 6 sectors have seen positive results. Communication Services has been the most successful sector, with a 40% gain. On the other hand, Utilities has been trailing behind.

2. S&P 500 Weekly Heat Map

Over the last week, 27% of the stocks in the S&P 500 index have risen in value.

The best-performing stocks were:

• Arista Networks, Inc. (ANET, 19%)

• Global Payments Inc. (GPN, 13%)

• Warner Bros. Discovery, Inc. (WBD, 9%)

Meanwhile, the worst-performing stocks were:

• DXC Technology Company (DXC, -30%)

• Fortinet, Inc. (FTNT, -26%)

• Generac Holdings Inc. (GNRC, -24%)

In addition, 56 stocks within the S&P 500 reached a new 52-week high, while 12 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:

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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 anticipated continued market volatility this week, and the market did deliver that, although it moved in a single direction with four consecutive days of losses. On Friday, the S&P 500 broke through its support level at 4,500, and we may see more weakness, at least to 4,450, before any recovery. A breakthrough above 4,600 would signal a resumption of the upward trajectory, setting the stage for potentially new all-time highs.

In fact, the natural target in the coming months would be the S&P 500's all-time high of 4,800. On the other hand, if the index falls below June's breakout level of 4,280-4,300, it would be a significant setback for the bullish case.

3. Momentum Analysis of the Week

This week's momentum analysis is about seasonality, as we started the month of August, a flat month over the past 20 years. The S&P500 has been up 60% of the time, for a +0.1% return on average.

Link to Instagram post

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EARNINGS RECAP

1. Earnings Season Summary

254 companies from the S&P 500 index have released their Q2 2023 earnings, with 79% posting higher EPS than expectations. This is higher than the previous four-quarter average of 73%, and the historical average of 66%.

2. Expected EPS & Revenue Growth

Q2 2023 earnings for the S&P 500 are expected to be down 4%. Excluding the energy sector, the figure is +2%.

The earnings are projected to be up 1% 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.

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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, 49% of the respondents had a bullish outlook on the stock market, a 4-point increase from the previous week. The investors' bullish sentiment was above the average for the 9th consecutive week.

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 4.0 to 4.1, the highest reading since March.

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THE WEEK AHEAD

1. Economic Calendar

The week ahead will focus on inflation, with the release of the Consumer Price Index on Thursday, followed by the Producer Price Index on Friday.

2. Earnings Calendar

The earnings season continues in the week ahead, and 33 companies from the S&P 500, including Disney and Eli Lilly, 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 Eli Lilly (LLY). In this post, I break down key data points around Eli Lilly’s fundamentals, stock returns, analyst ratings, and past earnings performance to help you make informed investment decisions.

Link to Instagram post

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Have a great week!

My Weekly Stock

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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.