Weekly Market Recap (May 8-12)
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.
I hope you enjoy this week's edition and find it helpful. If you like what you see, please share it with your network on social media and, if you haven't already, subscribe to our email updates.
Thank you for joining us, and let's get started!
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 down 0.3%, the Dow Jones down 1.1%, and the Nasdaq up 0.4%. Communication services (+2.3)and Consumer Cyclical (+0.4%) were the best-performing sectors.
2. Lower-than-expected inflation reports were overshadowed by ongoing concerns over the US debt ceiling and regional banks.
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 457 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 1% in 2023.
5. Earnings reports from Walmart, Target, and Home Depot are scheduled for next week, as well as an update on consumer spending with the Retail Sale report for April.
My take:
Another week has gone by, and the conflicting news continues. On the one hand, we have inflation slowing, the Fed signaling the end of its hiking cycle, and earnings exceeding expectations. On the other hand, concerns over a potential recession and the health of the US regional banks remain high.
We see a similar picture when looking at the technical factors, as the S&P 500 remains stuck in a consolidation range. That presents challenging trading conditions as the index continues to post failed breakouts or breakdowns. However, remember that consolidation periods are common and usually resolve with a sharp move.
Despite the confusing price actions, my outlook remains cautiously optimistic, and I believe we will at least test the 4,300 level. As always, it's best to be patient and wait for clearer signals.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 2 of the 11 S&P 500 sectors have achieved gains. Communication services led the way and rose by 2.3%. By contrast, Energy was the weakest, falling by 2.1%.
Year-to-date, 5 sectors have seen positive results. Communication Services has been the most successful sector, with a 24% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last five trading days, 31% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
First Solar, Inc. (FSLR, 30%)
STERIS plc (STE, 11%)
Alphabet Inc. (GOOG, 11%)
Meanwhile, the worst-performing stocks were:
PayPal Holdings, Inc. (PYPL, -18%)
Tyson Foods, Inc. (TSN, -19%)
Catalent, Inc. (CTLT, -31%)
In addition, 32 stocks within the S&P 500 reached a new 52-week high, while 23 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&P 500 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 sectors' 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 S&P 500 sectors and identify those likely to outperform. Based on this approach, I've identified the Technology sector as having the best relative momentum this week. I encourage fellow momentum traders to investigate this sector and its best-performing stocks.
For daily updates and content on the stock market, follow me on Instagram.
EARNINGS RECAP
1. Earnings Season Summary
457 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 +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, 29% of the respondents had a bullish outlook on the stock market, a 5-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 rose from 3.2 to 3.4 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 Retail Sales for April, with the market expecting a month-over-month increase of 0.7%, after seeing a decline in March. This data release will be closely watched to assess the strength of consumer spending.
2. Earnings Calendar
The Q1 2023 earnings season is now well under way, and 15 companies from the S&P 500, including Walmart, Home Depot, and Target 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 The Home Depot ($HD) ahead of earnings. In this post, I break down key data points around The Home Depot’s fundamentals, technicals, analyst ratings, and past earnings performance to help you make informed investment decisions.
Thank you for reading my weekly market recap! I hope you found it helpful in understanding the stock markets better. If you did, please share this post with your friends and followers.
If you have any questions or feedback, please don't hesitate to reach out by email or in the comment section. Your support helps me to continue creating high-quality content and is greatly appreciated!
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.