Weekly Market Recap (Jun. 5-9)
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 slightly positive for the week, with the S&P 500 up 0.4%, the Dow Jones 0.3%, and the Nasdaq 0.1%. Consumer Cyclical (+2.7%) and Utilities (+2.0%) were the best-performing sectors.
2. The stock indices consolidated and digested the rally of the recent weeks.
3. The long-term trend for the S&P 500 is positive, and the index is sitting at a high for 2023 and a critical resistance at 4,300.
4. The earnings season is almost over, and 497 companies from the S&P 500 index have already released their Q1 results, with 77% beating estimates. Earnings are expected to be flat in Q1 2023 and rise by 2% in 2023.
5. Earnings reports from Oracle and Adobe are scheduled for next week. Major economic updates include the May CPI and Retail Sales updates, while the Fed will hold its 2-day policy meeting.
My take:
As anticipated, the market entered a consolidation phase this week, and notably, the S&P 500 index made several attempts to break above the 4,300 level. Although we have yet to witness a definitive breakout, we did not experience significant selling pressure either. This constructive and stable price action is a positive sign for the market, and we continue to observe broader participation beyond the mega-cap tech sector, which is a healthy development.
Overall, I am leaning toward a bullish case, but I take things step by step. First, we must break above the 4,300 level, followed by 4,550 (March 2022 high). Once we clear these levels, we will likely test the index's all-time high at 4,800.
The upcoming week brings many potential catalysts, including the CPI, the Federal Reserve's interest rate announcements, and Retail Sales data. Investors will seek confirmation that inflation is under control, the Fed pauses its rate hiking cycle, and we are avoiding a severe recession. Next week can fuel the next leg of this rally and confirm that we have entered a new bull market.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 9 of the 11 S&P 500 sectors have achieved gains. Consumer Cyclical led the way and rose by 2.7%. By contrast, Consumer Defensive was the weakest, falling by 0.7%.
Year-to-date, 6 sectors have seen positive results. Technology has been the most successful sector, with a 33% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 86% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Warner Bros. Discovery, Inc. (WBD, 18%),
Tesla, Inc. (TSLA, 14%),
Bath & Body Works, Inc. (BBWI, 12%)
Meanwhile, the worst-performing stocks were:
EPAM Systems, Inc. (EPAM, -19%)
Campbell Soup Company (CPB, -11%)
DISH Network Corporation (DISH, -10%)
In addition, 40 stocks within the S&P 500 reached a new 52-week high, while 8 set new lows, indicating the momentum is 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
The S&P 500 has been consolidating this week and digesting the recent gains. The next significant hurdle lies at the 4,300, which would mark the beginning of a new bull market. I expect 4,550 (March 2022 high) to also be a significant resistance. Once we clear this level, the natural target for this rally will be the S&P 500's all-time high at 4,800.
In terms of support, a decline below the 4,100 level would deal a significant blow to the bullish scenario.
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 Communication Services sector as having the best relative momentum at the moment.
For daily updates and content on the stock market, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
497 companies from the S&P 500 index have released their Q1 2023 earnings, with 77% posting higher EPS than expectations. This is higher than the previous four-quarter average of 74%, and the historical average of 66%.
2. Expected EPS & Revenue Growth
Q1 2023 earnings for the S&P 500 are expected to be flat. Excluding the energy sector, the figure falls to -2%.
The earnings growth rate for 2023 is projected at +2%, 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 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, 45% of the respondents had a bullish outlook on the stock market, a 16-point increase from the previous week. The investors' bullish sentiment is now at the highest level since November 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 to 3.6, a moderately bearish reading.
THE WEEK AHEAD
1. Economic Calendar
Next week will be heavy on the economic data front. On Tuesday, the CPI update for May is released, and the markets expect a 4.9% year-over-year increase. On Wednesday, the Federal Reserve will hold its- 2-day policy meeting and should confirm a pause on its hiking cycle. Finally, Thursday will see the release of the latest Retail Sale data.
2. Earnings Calendar
The Q1 2023 earnings season is almost over, and 4 companies from the S&P 500, including Oracle and Adobe are set to report their quarterly earnings next week.
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 how the stock positions itself before the earnings.
If you want to learn more, check out my in-depth overview of Adobe (ADBE) ahead of earnings. In this post, I break down key data points around Adobe’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.