Weekly Market Recap (Oct 21-25): Weekly Winning Streak Ends - Is the Rally Losing Steam?
Everything you need to know about last week's markets performance and what to expect next.
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SUMMARY
Here are this week's highlights and what to look out for next:
1. The markets were negative this week, with the S&P 500 down -1%, the Nasdaq up 0.2%, and the Dow Jones down -2.7%. Consumer Cyclical (+0.7%) and Technology (-0.3%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive, while the short-term trend is mixed to positive. 5,900 is the next resistance, while 5,760 is support.
3. The Q3 earnings season is picking up steam and 185 companies from the S&P 500 index have released their Q3 results, with 79% beating estimates. Earnings are expected to be up 4% in Q3 2024 and 9% in 2024.
4. Market sentiment is at the "Greed" level (59) as measured by CNN’s Fear & Greed indicator, while VIX is at a high value of 20.
5. Earnings reports from Apple and Microsoft, the PCE and the Job reports are scheduled for next week.
My take:
The streak of six consecutive positive weeks finally came to an end. We saw the usual early-week softness, followed by a late-week bounce; however, it was not enough to close the week in the green. We saw some bearish follow-through, with the index briefly losing its 21-day exponential moving average and giving us a glimpse of what could be in store when this market rally inevitably ends.
Now what? While the market retreated this week and didn't hit a new high, we're far from a complete bearish reversal. The pullback actually helped reset several momentum indicators from overheated to more sustainable levels. So both bears and bulls will try to (re)gain the upper hand next. And what better than a week packed with catalysts to power the next move in the markets? We're indeed heading into the busiest week of the earnings season, with almost a third of S&P 500 companies reporting, including five of the 'Mag 7,' alongside the latest job report and more inflation data.
In the longer term, I still view 6,000 as a magnet for the S&P 500 in the coming months. However, risk management will remain paramount, especially with November set to bring several more catalysts: the U.S. elections, the next FOMC meeting, and Nvidia's earnings, just to name a few.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 1 of the 11 S&P 500 sectors have achieved gains. Consumer Cyclical led the way, rising by 0.7%. By contrast, Materials was the weakest, falling by -3.8%.
Year-to-date, all the sectors have seen positive results. Utilities has been the most successful sector, with a 27% gain. On the other hand, Energy has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 19% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
Tesla Inc (TSLA, 22%)
Molina Healthcare Inc (MOH, 12%)
Tapestry Inc (TPR, 12%)
Meanwhile, the worst-performing stocks were:
Mohawk Industries, Inc. (MHK, -19%)
Newmont Corp (NEM, -16%)
Universal Health Services, Inc. (UHS, -14%)
In addition, 80 stocks within the S&P 500 reached a new 52-week high, while 6 set new lows. Most of the highs this week came from the Industrial sector.
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 9 and 30-week exponential moving averages (EMAs). To determine if the trend is strongly positive, I look for the following conditions (the 1st is the most important):
9-week EMA is above the 30-week EMA: 🟢
Price is trading above the 9-week EMA: 🟢
Price is trading above the 30-week EMA: 🟢
The 9-week EMA trend line is rising: 🟢
The 30-week EMA trend line is rising: 🟢
I also use the MACD as an additional tool to detect trend changes. The MACD line is above its signal line, a positive indication for the index.
2. S&P 500 Technical Analysis
Healthy bull markets typically see the index set several new highs, broad market participation, and ascending trend lines. That's why I've created a four-part scorecard – a straightforward tool to give us a comprehensive view of these essential health indicators.
Momentum: The index is up 1% over the past month, 6% in the last three months, and is trading 1% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 72% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 41% of the stocks are trading above their 20-day SMA, down sharply from 71% the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on the 1-day is positive while the 4-hour chart is more mixed.
Key levels: The next resistance level is 5,900. On the other hand, the next support area is at 5,760.
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 have a significant impact on your portfolio.
EARNINGS RECAP
1. Q3 and Full Year 2024 Expected EPS & Revenue Growth
Q3 2024 earnings for the S&P 500 are expected to be up 4%. Excluding the energy sector, the figure is +6%.
Earnings are projected to grow by 9% in 2024, in line with the 9% growth seen on average over the last decade. In the past four weeks, 46% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21.7, higher than the average over the past five and ten years.
2. Q3 Earnings Season Summary
185 companies from the S&P 500 index have released their third-quarter earnings, with 79% posting higher EPS than expectations. This is in line with the previous four-quarter average of 79% and higher than the historical average of 67%.
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. AAII Sentiment Survey (Individual Investors)
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 are published every Wednesday.
According to the most recent AAII survey, 38% of the respondents had a bullish outlook on the stock market, decreasing by 8 points from the previous week.
2. BofA Bull & Bear Indicator (Institutional Investors)
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 latest reading available of the indicator was 6.8, a bullish sentiment reading.
3. CNN Fear & Greed Index (Technical)
The CNN Fear & Greed Index is a daily measure that analyzes seven market indicators to assess how emotions influence investors' decisions. The index is scored out of 100 and categorizes results into five stages: Extreme Fear, Fear, Neutral, Greed, and Extreme Greed.
The index closed at 59, or a “Greed” level, down from 74 last Friday.
THE WEEK AHEAD
1. Economic Calendar
Next week will be packed with economic reports, especially toward the second part of the week. On Thursday, the Personal Consumption Expenditures (PCE), the Fed's favored measure of inflation, will be released. Then, on Friday, the market will focus on the Non-Farm Payroll report. Both reports will likely be pivotal in shaping the Fed's future interest rate decisions.
2. Earnings Calendar
Earnings season continues next week, and 157 companies from the S&P 500, including Apple and Microsoft, 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 Indicators:
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" valuation and/or low growth expectations.
Stock Price Reactions to Earnings:
1-day Stock Return on Earnings is the stock performance on the earnings release date.
Implied volatility is the expected 1-day stock change after earnings are released, as assessed by the options markets.
Every week, I share my analysis of 1 stock reporting earnings in the coming days, focusing on implications for long-term investors. 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. Check out the post and learn why I gave a “BUY” rating to Microsoft.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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Have a great week!
My Weekly Stock
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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.