Weekly Market Recap (May 15-19)
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 1.6%, the Dow Jones 0.4%, and the Nasdaq 3.0%. Technology (+4.3%) and Communication services (+2.8%) were the best-performing sectors.
2. Markets were lifted by the optimism Congress will reach an agreement to raise the US debt ceiling and and a strong earnings report and upbeat guidance from Walmart.
3. The long-term trend for the S&P500 is turning positive, and the index finally broke out from a 6 week consolidation.
4. The earnings season is well underway, and 471 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 1% in 2023.
5. Earnings reports from Nvidia, Costco, and Lowe’s are scheduled for next week, as well as an update on inflation with the PCE Price Index for April and the release of the minutes from the last Fed meeting.
My take:
The S&P 500 has finally broken out from a long period of consolidation, a significant development, considering we were stuck in an 80-point range (between 4,100 and 4,180) for almost six weeks. In past updates, I mentioned 4180 as a critical resistance level, and now, we have surpassed that and reached a new high this year.
Focus now shifts to holding the breakout level (4,150-4,180) and avoiding, at all costs, a failed breakout. A failed breakout happens when the market breaks above the resistance level but quickly reverses, indicating weakness and usually more pain ahead.
My short-term outlook remains cautiously optimistic, and I believe we will at least test the 4,300 level. This level is significant given that it is the high point from August 2022, where we experienced a sharp sell-off, and it would also mark the official start of a new bull market.
As always, let's approach the market one level at a time. Patience and focusing on critical levels have proven beneficial so far this year.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 7 of the 11 S&P 500 sectors have achieved gains. Technology led the way and rose by 4.3%. By contrast, Utilities was the weakest, falling by 4.3%.
Year-to-date, 6 sectors have seen positive results. Communication Services has been the most successful sector, with a 28% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 60% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Comerica Incorporated (CMA, 20%)
Zions Bancorporation, National Association (ZION, 19%)
Western Digital Corporation (WDC, 16%))
Meanwhile, the worst-performing stocks were:
First Solar, Inc. (FSLR, -12%)
V.F. Corporation (VFC, -10%)
Revvity, Inc. (PKI, -10%)
In addition, 43 stocks within the S&P 500 reached a new 52-week high, while 24 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
The S&P500 has finally broken out of its six-week consolidation, during which it hovered between 4,100 and 4,180, and is now at a new high for 2023.
The next significant resistance level is 4,300, which would signal the beginning of a new bull market. It is also the level we failed to surpass in August 2022, causing a severe sell-off to the October 2022 lows.
Regarding supports, we must maintain the breakout level around 4,150-4,180, while a decline below 4,100 would be a significant blow to the bull case.
3. Momentum Analysis of the Week
This week's momentum analysis is about the S&P 500 2023 performance by stock. While the S&P 500 is up 9% in 2023, only 48% of stocks in the index have increased in value? Actually the gains from these 7 stocks: AAPL, NVDA, MSFT, GOOGL, AMZN, META, and TSLA account for ALL the S&P 500 gains this year.
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EARNINGS RECAP
1. Earnings Season Summary
471 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 +1%, 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, 23% of the respondents had a bullish outlook on the stock market, a 6-point decrease 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 3.4 to 3.5 and remains tipped to the bearish side.
THE WEEK AHEAD
1. Economic Calendar
Looking ahead, the focus for next week will be again on inflation with the release of the PCE price index, the Fed’s favorite measure of inflation. The meeting minutes from the last FOMC will be published on Wednesday, giving more insights into the Fed policy.
2. Earnings Calendar
The Q1 2023 earnings season is well under way, and 15 companies from the S&P 500, including Nvidia, Costco, and Lowe’s 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 NVIDIA Corporation (NVDA) ahead of earnings. In this post, I break down key data points around NVIDA’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.