Weekly Market Recap (Oct 2 - 6)
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 up for the week, with the S&P 500 up 0.5%, the Nasdaq +1.6%, and the Dow Jones down 0.3%. Technology (+2.6%) and Communication Services (+2.0%) were the best-performing sectors.
2. The stock indices finished the week in the green after a stronger-than-expected job report and a softer wage number.
3. The long-term trend for the S&P 500 is positive but deteriorating, and the short-term trend has stabilized. The next resistance is at 4,450, while support is at 4,220.
4. The Q2 earnings season is over, and all companies from the S&P 500 index have released their 2nd quarter results, with 79% beating estimates. Earnings are expected to be up 1% in Q3 2023 and 2% in 2023.
5. Earnings reports from UnitedHealth and JPMorgan are scheduled for next week as well as the release of the Consumer Price Index (CPI) report.
My take:
Despite what the weekly figures suggest, we witnessed much action again this week, and notably, the S&P 500 tested its support around 4,220 several times. And just when it appeared we were on the verge of losing this support on Friday due to the stronger-than-expected jobs report and rising yields, the index rallied, closing back above 4,300.
Next week comes with its own challenges, with the CPI report and the start of the Q3 earnings season. I'd keep a close eye on those key levels. Given the extended period of softness we've been experiencing, it's wise to await more precise signals, notably the reclaiming of 4,450. Conversely, this week's low at 4,220 is pivotal to watch, as it's been tested multiple times now.
While the last two months have posed challenges, I still believe we're in a bull market and that the S&P 500 is making a new all-time high in the months ahead. But this will be a bumpy road.
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 2.6%. By contrast, Energy was the weakest, and fell by 5.2%.
Year-to-date, 4 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, 39% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
MarketAxess Holdings Inc. (MKTX, 12%)
Edwards Lifesciences Corp (EW, 6%)
CME Group Inc (CME, 6%)
Meanwhile, the worst-performing stocks were:
NextEra Energy Inc (NEE, -12%)
McCormick & Co., Inc. (MKC, -15%)
AES Corp. (AES, -18%)
In addition, 9 stocks within the S&P 500 reached a new 52-week high, while 98 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
The S&P 500 found support around 4,220-40 multiple times this week. The index seemed about to lose support on Friday before staggering an impressive comeback and closing the week in the green. Now, we need to hold that level. Looking up, I need to see the index back above 4,450 to be more confident that we are done with the negative momentum.
In the longer term, 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 the top and worst-performing stocks in each sector. The difference in performance between the best and worst-performing stocks in each sector is huge, emphasizing the importance of stock selection. Choosing wisely when it comes to stock selection can significantly impact your portfolio.
EARNINGS RECAP
1. Q2 Earnings Season Summary
All the companies from the S&P 500 index have released their Q2 2023 earnings, with 79% posting higher EPS than expectations. This is higher than the previous four-quarter average of 73%, and the historical average of 66%.
2. Q3 and 2023 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 2% in 2023, lower than the 9% growth seen on average over the last decade. Earnings are expected to increase year-over-year in 8 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, 30% of the respondents had a bullish outlook on the stock market, a 2-point increase from the previous week. The investors' bullish sentiment has increased for the first time in a month.
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 3.0 to 2.6, the lowest level in 5 months.
THE WEEK AHEAD
1. Economic Calendar
Next Thursday, the Consumer Price Index (CPI) report is on the agenda, offering insight into the current inflation landscape. Meanwhile, Wednesday will bring us the Fed Minutes, shedding light on the Federal Reserve's latest discussions and potential policy shifts.
2. Earnings Calendar
The Q3 earnings season is starting next week, and 11 companies from the S&P 500, including UnitedHealth and JPMorgan, 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 PepsiCo ($PEP). In this post, I break down key data points around PepsiCo’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.