Weekly Market Recap (Sep 18 - 22)
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 down for the week, with the S&P 500 down 2.9%, the Nasdaq 3.6%, and the Dow Jones 1.9%. Healthcare (-1.6%) and Utilities (-2.5%) were the best-performing sectors.
2. The stock indices sharply decreased after the Federal Reserve hinted that rates may need to stay higher longer than expected to fight inflation.
3. While the long-term trend for the S&P 500 remains positive, we are back on a short-term downtrend. The next resistance is at 4,450, while support is at 4,300.
4. The Q2 earnings season is almost over, and 499 companies from the S&P 500 index have released their 2nd quarter results, with 79% beating estimates so far. Earnings are expected to be up 2% in Q3 2023 and 2% in 2023.
5. Earnings reports from Costco and Nike are scheduled for next week, as well as the PCE price index, the Fed’s favorite measure of inflation.
My take:
The S&P500 broke through its support after the Fed meeting, triggering a sharp downturn since. Short-term momentum has shifted to the downside. Meanwhile, oil is inching towards the $100 mark, while treasury yields are approaching levels not seen since 2007. As if that's not enough, the markets are wrestling with an array of uncertainties, from seasonal weakness to potential government shutdowns, all on top of the ongoing battle against inflation.
Looking to the week ahead, we could see some green days. However, unless the S & P500 can reclaim the 4,450 mark, the short-term tilt remains bearish.
I remain optimistic about the markets for the long haul, albeit with a more cautious view. I still believe the S&P 500 will test its all-time high of 4,800 in the coming months. However, it is critical to remember that markets rarely ascend linearly.
PERFORMANCE RECAP
1. SP500 Sector Performance
Over the week, none of the S&P 500 sectors have achieved gains. Healthcare led the way but declined by 1.6%. By contrast, Consumer Cyclical was the weakest, and fell by 6.3%.
Year-to-date, 6 sectors have seen positive results. Communication Services has been the most successful sector, with a 37% gain. On the other hand, Utilities has been trailing behind.
2. S&P 500 Weekly Heat Map
Over the last week, 13% of the stocks in the S&P 500 index have risen in value.
The best-performing stocks were:
Cboe Global Markets, Inc. (CBOE, 5%)
Humana Inc. (HUM, 5%)
The Allstate Corporation (ALL, 5%)
Meanwhile, the worst-performing stocks were:
Caesars Entertainment, Inc. (CZR, -13%)
Moderna, Inc. (MRNA, -13%)
MGM Resorts International (MGM, -11%)
In addition, 22 stocks within the S&P 500 reached a new 52-week high, while 44 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. 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 unfortunately lost support at 4,450, and the S&P 500 re-entered in a short-term downtrend. We may get a bounce next week, as some indicators I follow suggest, but I won't turn fully bullish until I see us back above 4,450.
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. On the other end, a break below 4,280-4,300, June's breakout level, would be a setback to the bullish case.
3. Momentum Analysis of the Week
This week's momentum analysis is about S&P 500 sector trends. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank these various sectors of the market and identify potential outperformers. Based on this approach, I've identified Energy and Communication Services as having the best relative momentum.
EARNINGS RECAP
1. Q2 Earnings Season Summary
499 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 2%. Excluding the energy sector, the figure is +7%.
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, 31% of the respondents had a bullish outlook on the stock market, a 3-point decrease from the previous week. The investors' bullish sentiment is at 4-month low.
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 3.6 to 3.4, the lowest level in a month.
THE WEEK AHEAD
1. Economic Calendar
On our radar for the upcoming week is the Personal Consumption Expenditures (PCE) data. As the Fed's favored measure of inflation, it plays a pivotal role in shaping interest rate decisions. The report is due on Friday. Stay tuned as well for the speech of the Fed Chair on Thursday. These can offer further perspectives on the recent Fed meeting.
2. Earnings Calendar
The earnings season is almost over, and 8 companies from the S&P 500, including Costco and Nike, 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 Costco ($COST). In this post, I break down key data points around Costco’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.
Great recap. The mid-week announcements sent the indices down 👇