Weekly Market Recap (Oct 16 - 20)
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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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 down for the week, with the S&P 500 down 2.4%, the Nasdaq 3.2%, and the Dow Jones 1.6%. Energy (+0.7%) and Consumer Defensive (+0.7%) were the best-performing sectors.
2. The stock indices sold off sharply after the Fed chairman said inflation was still too high and might require lower economic growth.
3. The long-term trend for the S&P 500 is deteriorating, and the short-term trend is back on the downside. The next resistance is at 4,450, while support is at 4,220.
4. The earnings season has started, and 86 companies from the S&P 500 index have released their 3rd quarter results, with 78% beating estimates. Earnings are expected to be up 1% in Q3 2023 and 13% in 2024.
5. Earnings reports from Microsoft and Alphabet are scheduled for next week, and the release of the latest PCE price index and Q3 GDP data.
My take:
The past week has proved challenging to navigate, starting on a somewhat positive note only to end in disappointment. While some signs pointed to a potential short-term rebound, the setup didn't hold, leaving us back to square 1.
The upcoming week is packed with potential market movers, from earnings reports of mega-cap tech giants to the release of GDP and inflation data, not to mention another address by Powell. As we wade through these catalysts, keeping our eyes on key levels is crucial. One to watch? The 4,220 mark on the S&P 500, a support level that has proven significant in recent weeks, and also the 200-day moving average.
In the long run, I remain optimistic about the market and believe we will revisit the all-time highs. But as the past few months have shown, it will be a challenging journey.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 2 of the 11 S&P 500 sectors have achieved gains. Energy led the way and rose by 0.7%. By contrast, Real Estate was the weakest, and fell by 4.6%.
Year-to-date, 5 sectors have seen positive results. Communication Services has been the most successful sector, with a 39% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 19% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
VF Corp. (VFC, 17%)
Dexcom Inc (DXCM, 13%)
Netflix Inc. (NFLX, 13%)
Meanwhile, the worst-performing stocks were:
Moderna Inc (MRNA, -18%)
Enphase Energy Inc (ENPH, -20%)
Solaredge Technologies Inc (SEDG, -31%)
In addition, 22 stocks within the S&P 500 reached a new 52-week high, while 52 set new lows, indicating the momentum is negative.
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 but deteriorating. 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 the following conditions (the 1st is the most important):
EMA9 is above the EMA30: 🟢
Price is trading above the EMA9: 🔴
Price is trading above the EMA30: 🔴
EMA9 is rising: 🔴
EMA30 is rising: 🟡
I also use MACD as an additional tool to detect trend changes. The MACD is giving a negative signal at the moment, indicating potentially more pain ahead.
2. S&P 500 Short-Term Outlook and Key Levels
We find ourselves once again hovering around the 4,220-4,240 support, a crucial junction we've rebounded from multiple times this month. Additionally, it's worth noting that this range aligns with the 200-day moving average. The significance of this level cannot be overstated; breaking below could signal further setbacks. And while the upcoming days might present some positive momentum, true confidence will only return once we breach the 4,450 resistance.
In the long run, a successful break above 4,600 would set the stage for testing new all-time highs at 4,800, but it might take some time before getting there. Conversely, a break below 4,180, June's low, would be a setback to the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about Mega Caps trends. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these various segments of the market and identify potential outperformers. Based on this approach, I've identified LLY 0.00%↑ and GOOG 0.00%↑ as currently having the best relative momentum.
EARNINGS RECAP
1. Q3 Earnings Season Summary
86 companies from the S&P 500 index have released their Q3 2023 earnings, with 78% posting higher EPS than expectations. This is higher than the previous four-quarter average of 74%, and the historical average of 67%.
2. Q3 and 2024 Expected EPS & Revenue Growth
Q3 2023 earnings for the S&P 500 are expected to be up 1%. Excluding the energy sector, the figure is +6%.
The earnings are projected to be up 13% in 2024, higher than the 9% growth seen on average over the last decade. Earnings are expected to increase year-over-year in all the 11 sectors, with the Healthcare and Communication Services sectors leading the way. On the other hand, the Energy and Real Estate sectors are projected to see a softer performance.
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, 34% of the respondents had a bullish outlook on the stock market, a 6-point decrease from the previous week. The investors' bullish sentiment dropped back below historical average this week.
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 fell from 2.2 to 1.9, signaling a “contrarian” buy signal.
THE WEEK AHEAD
1. Economic Calendar
The Personal Consumption Expenditures (PCE) data is on our radar for the upcoming week. As the Fed's favored measure of inflation, it plays a pivotal role in shaping interest rate decisions. Keep as well an eye out for the Q3 GDP data update on Thursday. Finally, another speech from the Fed chairman is expected and might again impact the markets.
2. Earnings Calendar
The Q3 earnings season is picking up steam next week, and 158 companies from the S&P 500, including Microsoft and Alphabet, are expected to release their quarterly results.
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 better the stocks before their earnings.
Every week, I share a deep dive into one stock reporting earnings in the coming days. This week, I prepared an in-depth overview of Microsoft ($MSFT). In this post, I break down key data points around Microsoft’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.
This is always super useful. Thanks Nicholas