Weekly Market Recap (May 22-26)
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 mixed for the week, with the S&P 500 up 0.3%, the Dow Jones down 1.0%, and the Nasdaq up 2.5%. Technology (+4.7%) and Communication Services (+1.2%) were the best-performing sectors.
2. The stock indices initially declined as Congress failed to reach a deal on the US debt ceiling, but we ended up on a positive note thanks to NVIDIA’s impressive earnings reports.
3. The long-term trend for the S&P500 is positive, and the index is close to its high for 2023.
4. The earnings season is almost over, and 485 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 2% in 2023.
5. Earnings reports from Salesforce, Broadcom, and HP are scheduled for next week, as well as an update on the job market with the Non-Farm Payroll report for May.
My take:
It was an odd week that started terribly but finished with a spectacular recovery, due mainly to Nvidia's exceptional earnings. Despite the S&P500's year-to-date gain of 10% and sitting at a high for 2023, a closer look reveals significant divergence. For example, only 3 sectors are positive this year, and the 7 largest stocks account for all the index gains in 2023.
We're back on an upbeat track in the short term. And, while I maintain a cautiously optimistic view, broader market participation would be healthier.
I anticipate the S&P 500 will test the 4,300 mark, signaling the start of a new bull market. Given the market's inclination for long consolidation periods lately, I expect us to spend significant time near that level.
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 4.7%. By contrast, Consumer Defensive was the weakest, falling by 3.3%.
Year-to-date, only 3 sectors have seen positive results. Technology has been the most successful sector, with a 32% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 30% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
NVIDIA Corporation (NVDA, 25%)
Monolithic Power Systems, Inc. (MPWR, 21%)
Advanced Micro Devices, Inc. (AMD, 20%)
Meanwhile, the worst-performing stocks were:
Insulet Corporation (PODD, -9%)
Dollar Tree, Inc. (DLTR, -11%)
Ulta Beauty, Inc. (ULTA, -14%)
In addition, 35 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&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
Despite the increased volatility this week, the S&P 500 is back above the breakout level from the previous week at 4,180 and is again 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, down to the October 2022 lows.
Regarding support, a decline below 4,100 would significantly blow the bull case.
3. Momentum Analysis of the Week
This week's momentum analysis is about Asset Class ETFs' trends. I employ various performance metrics and technical indicators, which are then processed by my proprietary algorithm. I use this model here to rank the different markets' ETFs and identify those likely to outperform.
From a relative standpoint, equity indices are displaying strong momentum. However, we are still navigating many risks, and the S&P 500 still needs to enter a bull market officially.
For daily updates and content on the stock market, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
485 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 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, 27% of the respondents had a bullish outlook on the stock market, a 4-point increase 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 was stable at 3.5 , a neutral reading.
THE WEEK AHEAD
1. Economic Calendar
Looking ahead, the focus for next week will be on the job market, with the release of the Non-Farm Payroll report. The market expects a 180k job addition in May, down from the 253k in April.
2. Earnings Calendar
The Q1 2023 earnings season is almost over, and 9 companies from the S&P 500, including Salesforce, Broadcom, and HP 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 Salesforce (CRM) ahead of earnings. In this post, I break down key data points around Salesforce’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.