Weekly Market Recap (Oct 30 - Nov 3)
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 5.9%, the Nasdaq 6.6%, and the Dow Jones 5.1%. Real Estate (+8.6%) and Materials (+5.1%) were the best-performing sectors.
2. The stock indices rallied on hopes the Fed is done with rate hikes.
3. The long-term trend for the S&P 500 is mixed but improving, while the short-term trend has flipped to the upside. The next resistance is at 4,400, while support is at 4,180.
4. The earnings season is well underway, and 403 companies from the S&P 500 index have released their 3rd quarter results, with 82% beating estimates. Earnings are expected to be up 6% in Q3 2023 and 11% in 2024.
5. Earnings reports from Disney and Occidental Petroleum are scheduled for next week, as well as several speeches from Fed officials, including chairman Powell.
My take:
Talk about a turnaround! We ended last week with record-high yields, lost support, and overly bearish sentiment. In that context, my only hope was for the S&P500 to quickly recover the 4,180 level to signal that the negative trend was over and the bull market was still in play. Thankfully, the market rose to the occasion, and the S&P 500 finished above 4,300, marking the best week of 2023.
This just goes to show that trading on news alone is a fool's errand, in my opinion. A better strategy is to take a step back, consider the longer-term trends, and keep a close watch on pivotal levels. With the short-term momentum now swinging positive, and as long as we stay firmly over the 4,180 threshold, I'm anticipating a test of the next resistance at 4,400. This might prove to be a more challenging level to pass, however.
In the longer term, my view remains one of cautious optimism. I still believe we will test new all-time highs down the line, but as always, I'll rely on the market to prove itself.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, all of the 11 S&P 500 sectors have achieved gains. Real Estate led the way and rose by 8.6%. By contrast, Energy was the weakest, but still rose by 2.5%.
Year-to-date, 5 sectors have seen positive results. Communication Services has been the most successful sector, with a 41% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 95% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Paramount Global (PARA, 29%)
Generac Holdings Inc (GNRC, 28%)
Warner Bros. Discovery Inc (WBD, 23%)
Meanwhile, the worst-performing stocks were:
Paycom Software Inc (PAYC, -34%)
ON Semiconductor Corp. (ON, -18%)
Match Group Inc. (MTCH, -13%)
In addition, 14 stock within the S&P 500 reached a new 52-week high, while 95 set new lows, indicating the momentum is still 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 now mixed but 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 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
I was hoping for the index to recover to the 4,180 level quickly, and once we cleared that level, the momentum shifted to positive, and we saw a strong rally. The roadmap for the coming weeks is simple: as long as we hold the 4,180 support, the S&P500 is poised to retest 4,400. I anticipate that level to be a significant resistance.
In the longer term, 4,600 is the next significant resistance, and a break above would open the door for new all-time highs while losing 4,100 would be a setback to the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about seasonality, as we are about to start the month of November, the 3rd best month of the year over the past 20 years. The S&P500 has been up 75% of the time, for a +1.8% return on average.
EARNINGS RECAP
1. Q3 Earnings Season Summary
403 companies from the S&P 500 index have released their Q3 2023 earnings, with 82% 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 6%. Excluding the energy sector, the figure is +11%.
The earnings are projected to be up 11% 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, 24% of the respondents had a bullish outlook on the stock market, a 5-point decrease from the previous week. The investors' bullish sentiment is at its lowest level in the 6 months.
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 1.5 to 1.4, the lowest level since November 2022.
THE WEEK AHEAD
1. Economic Calendar
The upcoming week will be light on the economic report front. Several Fed officials, including chairman Powel, will deliver speeches in the coming week. These can explain future policy directions and the Fed's economic outlook.
2. Earnings Calendar
The Q3 earnings season is well under way next week, and 50 companies from the S&P 500, including Disney and Occidental Petroleum, 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 Walt Disney Co. ($DIS). In this post, I break down key data points around Walt Disney Co.’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.