Weekly Market Recap (May 30 - Jun. 2)
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 1.8%, the Dow Jones 2.0%, and the Nasdaq 2.0%. Consumer Cyclical (+3.3%) and Real Estate (+3.1%) were the best-performing sectors.
2. The stock indices rallied after Congress finally approved an increase in the US debt ceiling and behind a better-than-expected job report.
3. The long-term trend for the S&P 500 is positive, and the index made a new high for 2023 this week.
4. The earnings season is almost over, and 494 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 JM Smucker and Campbell Soup are scheduled for next week, and the release of the Services PMI.
My take:
The positive momentum continued this week, with the NASDAQ securing its 6th consecutive weekly gain and the S&P 500 its 3rd. Finally, we saw broader market participation that I was hoping for, as all sectors showed positive performance. The S&P 500 also closed at its highest level since August 2022.
For the past few weeks, I've been looking at a test of the 4280-4300 range, and we have now reached that critical level. Why is it significant? It's where we saw a big drop in August 2022, and going above would also mark the official start of a new bull market.
I expect some resistance at this level, and it may take time before we can move above it with conviction. And looking ahead, next week is relatively quiet regarding economic news and earnings reports, and it is the ideal time for the market to consolidate and build a solid base.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, all the 11 S&P 500 sectors have achieved gains. Consumer Cyclical led the way and rose by 3.3%. By contrast, Consumer Defensive was the weakest, but still rising by 0.3%.
Year-to-date, 5 sectors have seen positive results. Technology has been the most successful sector, with a 34% 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:
Tesla, Inc. (TSLA, 16%)
Match Group, Inc. (MTCH, 16%)
Intel Corporation (INTC, 14%)
Meanwhile, the worst-performing stocks were:
Advance Auto Parts, Inc. (AAP, -39%)
Dollar General Corporation (DG, -18%)
Ulta Beauty, Inc. (ULTA, -13%)
In addition, 30 stocks within the S&P 500 reached a new 52-week high, while 38 set new lows, indicating the momentum is mixed.
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 increased volatility this week, the S&P 500 reached a new high for 2023 and is currently at its highest since August 2022.
The next significant hurdle lies at the 4,300, which would mark the beginning of a new bull market. Notably, we faced significant challenges in surpassing this level in August 2022, leading to a severe sell-off that drove prices down to the October 2022 lows.
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 is about seasonality, as we started the month of June. Over the past 20 years, the S&P500 was down 0.4% on average in June, however with a win rate of 60%.
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EARNINGS RECAP
1. Earnings Season Summary
494 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, 29% of the respondents had a bullish outlook on the stock market, a 2-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 moderately bearish reading.
THE WEEK AHEAD
1. Economic Calendar
Next week will be light in terms of economic data front in the US, with the main update being the Services PMI reading for May and released on Monday.
2. Earnings Calendar
The Q1 2023 earnings season is almost over, and 3 companies from the S&P 500, including JM Smucker and Campbell Soup 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 DocuSign (DOCU) ahead of earnings. In this post, I break down key data points around DocuSign’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.