Weekly Market Recap (Oct 9 - 13)
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 slightly up for the week, with the S&P 500 up 0.4%, the Nasdaq down 0.2%, and the Dow Jones +0.8%. Energy (+4.5%) and Utilities (+3.6%) were the best-performing sectors.
2. The stock indices posted their 2nd consecutive weekly win despite rising oil prices and higher-than-expected inflation data.
3. The long-term trend for the S&P 500 is positive, and the short-term trend is improving. The next resistance is at 4,450, while support is at 4,220.
4. The earnings season has started, and 32 companies from the S&P 500 index have released their 3rd quarter results, with 88% beating estimates. Earnings are expected to be up 2% in Q3 2023 and 12% in 2024.
5. Earnings reports from Tesla and Netflix are scheduled for next week and the release of the latest Retail Sales data.
My take:
We had many reasons to sell off this week: the situation in the Middle East, further hawkish comments from Fed officials, and inflation numbers hotter than anticipated. But, defying these headwinds, markets continued their recovery, proving once more that trading solely on news/events is a fool game.
While the price action has been somewhat constructive, we're not in the clear yet. The S&P 500 will see significant resistance at the 4,450 mark. So, until we cross that boundary, I'd tread with care.
As we move into next week, the earnings season is ramping up and will give us more insights into the state of the economy and businesses. But that could also mean increased volatility and a tricky week to navigate.
In the longer run, I still believe we're in a bull market and that the S&P 500 is poised to make a new all-time high in the months ahead. But as this summer has shown, the journey won't be without twists and turns.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, 7 of the 11 S&P 500 sectors have achieved gains. Energy led the way and rose by 4.5%. By contrast, Consumer Cyclical was the weakest, and fell by 1.0%.
Year-to-date, 5 sectors have seen positive results. Communication Services has been the most successful sector, with a 40% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 51% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Northrop Grumman Corp. (NOC, 16%)
Marathon Oil Corporation (MRO, 14%)
Huntington Ingalls Industries Inc (HII, 11%)
Meanwhile, the worst-performing stocks were:
Baxter International Inc. (BAX, -13%)
Hormel Foods Corp. (HRL, -13%)
DaVita Inc (DVA, -18%)
In addition, 25 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
The index found its support at 4,220-4,240 last Friday and continued its recovery despite somewhat negative news. As long as we hold that level, I am looking for a retest of 4,450 in the coming weeks.
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 Asset Class ETFs' 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 the US dollar fund and the Nasdaq as currently having the best relative momentum.
EARNINGS RECAP
1. Q3 Earnings Season Summary
32 companies from the S&P 500 index have released their Q3 2023 earnings, with 88% posting higher EPS than expectations. This is higher than the previous four-quarter average of 74%, and the historical average of 66%.
2. Q3 and 2024 Expected EPS & Revenue Growth
Q3 2023 earnings for the S&P 500 are expected to be up 2%. Excluding the energy sector, the figure is +7%.
The earnings are projected to be up 12% 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 Technology and Communication Services sectors leading the way. On the other hand, the Energy and Materials 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, 40% of the respondents had a bullish outlook on the stock market, a 10-point increase from the previous week. The investors' bullish sentiment is above historical average for the first time in 5 weeks.
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 2.6 to 2.2, the lowest level in 5 months.
THE WEEK AHEAD
1. Economic Calendar
For the coming week, the Retail Sales data is on deck and will provide insights into the strength of the consumer segment. Meanwhile, Thursday will bring us a speech from the Fed chairman, offering hints about the Fed’s interest policy directions and economic outlook.
2. Earnings Calendar
The Q3 earnings season is picking up steam next week, and 56 companies from the S&P 500, including Tesla and Netflix, 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 Tesla ($TSLA). In this post, I break down key data points around Tesla’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.