Weekly Market Recap (May 1- 5)
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 negative for the week, with the S&P 500 down 0.8%, the Dow Jones 1.3%, and the Nasdaq flat. Technology (+0.3%) and Utilities (+0.1%) were the best-performing sectors.
2. Fear of a deeper bank crisis weighed on sentiment early in the week, but better-than-expected earnings from Apple and a robust payroll report helped recoup some of the losses on Friday.
3. The long-term trend for the S&P500 is turning positive, but the index needs to finally clear resistance ahead, starting with the 2023 high at 4,180.
4. The earnings season is well underway, and 419 companies from the S&P 500 index have already released their Q4 results, with 77% beating estimates. Earnings are expected to fall 1% in Q1 2023 and rise 2% in 2023.
5. Earnings reports from Disney, Paypal, and Electronic Arts are scheduled for next week, as well as an update on inflation with the Consumer Price Index for April.
My take:
It was another mixed and frustrating week for the S&P 500, with four consecutive days of losses followed by a strong rally on Friday. In situation like this, I like to zoom out and look at the bigger picture. Since the end of March, the index has been stuck in a consolidation range between ~4,000-4,180. Therefore, I disregard the movements within this range and wait for a breakout up or down.
Despite the confusing price action, my outlook for the S&P 500 remains cautiously optimistic. I still believe the index is likely to test the 4,300 level, which would signal the start of a new bull market. Considering the mixed signals and uncertainties in the market, stay patient and wait for clearer signals before making any significant moves.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 3 of the 11 S&P 500 sectors have achieved gains. Technology led the way and rose by 0.3%. By contrast, Energy was the weakest, falling by 5.8%.
Year-to-date, 7 sectors have seen positive results. Communication Services has been the most successful sector, with a 25% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 36% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Royal Caribbean Cruises Ltd. (RCL, 16%)
Live Nation Entertainment, Inc. (LYV, 14%)
ON Semiconductor Corporation (ON, 13%)
Meanwhile, the worst-performing stocks were:
The Estee Lauder Companies Inc. (EL, -18%)
Paramount Global (PARA, -28%)
First Republic Bank (FRC, -78%)
In addition, 57 stocks within the S&P 500 reached a new 52-week high, while 32 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&P500 is improving. 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
No change in my short-term view on the S&P500 as we remain stuck in the consolidation zone. I still think we will test the 4,300 level, indicating the official start of a new bull market and aligning with the August 2022 high.
However, it is crucial to remain cautious and let the market demonstrate its intentions, starting with a break of the resistance level at 4,180. Conversely, if the index were to drop below 4,000 and then 3,900, it would be a significant setback for the bull case.
3. Momentum Analysis of the Week
This week's momentum analysis is about the S&P 500 seasonality. As we start the month of May, I take a closer look at the average performance of the S&P 500 in that month. Over the past 20 years, May has returned +0.4% on average and has been positive 75% of the time.
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EARNINGS RECAP
1. Earnings Season Summary
419 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 decline by 1%. 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 6 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, 24% of the respondents had a bullish outlook on the stock market, stable from the previous week. The investors' bullish sentiment remains on the low side vs. the historical levels.
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 2.9 to 3.2 and remains tipped to the bearish side.
THE WEEK AHEAD
1. Economic Calendar
Looking ahead, the focus for next week will be on the release of the Consumer Price Index (CPI) for April, with the market expecting a year-over-year increase of 5.0%, in line with last month's increase. This data release will be closely watched by investors as inflation remains a significant concern in the current economic environment.
2. Earnings Calendar
The Q1 2023 earnings season is now well under way, and 32 companies from the S&P 500, including Disney, PayPal, and Occidental Petroleum 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 3 key indicators I like to review:
Stock performance in the previous quarter.
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.
It is helpful to analyze these 3 indicators to understand how the stock positions itself before the earnings.
If you want to learn more, check out my in-depth overview of Disney ($DIS) ahead of earnings. In this post, I break down key data points around Disney’s fundamentals, technicals, 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.