Weekly Market Recap (Sep 2-6): September Didn't Fail Its Reputation. But Can We Bounce Here?
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 down this week, with the S&P 500 down -4.3%, the Nasdaq -5.8%, and the Dow Jones -2.9%. Consumer Defensive (+0.6%) and Real Estate (+0.2%) were the best-performing sectors.
2. The S&P 500's long-term trend is positive, but the short-term momentum has shifted negative. 5,500 is the next resistance, while 5,370 is support.
3. The earnings season is almost over and 498 companies from the S&P 500 index have released their Q2 results, with 79% beating estimates. Earnings are expected to be up 13% in Q2 2024 and 10% in 2024.
4. Market sentiment is at the "Fear" level (40) as measured by CNN’s Fear & Greed indicator, while VIX is at a high value of 22.
5. Earnings reports from Adobe and Oracle, as well as the CPI and PPI reports are scheduled for next week.
My take:
September lived up to its reputation as the worst month historically, kicking off with a sharp sell-off. We finished August with 90% of stocks trading above their 20-day moving average, usually a sign that the rally was likely running out of steam. As often the case, failure to break above previous highs spelled trouble for the markets and left us vulnerable to a pullback.
What now? We must defer to the trend, and the short-term momentum has shifted negatively. Until the S&P 500 recovers key resistance levels, starting with 5,500, we need to remain cautious and watch for further downside. And a retest of the August lows can't be ruled out just yet.
PERFORMANCE RECAP
1. S&P 500 Sector Performance
Over the week, 2 of the 11 S&P 500 sectors have achieved gains. Consumer Defensive led the way, rising by 0.6%. By contrast, Technology was the weakest, falling by -7.4%.
Year-to-date, all the sectors have seen positive results. Utilities has been the most successful sector, with a 20% gain. On the other hand, Consumer Cyclical has been trailing behind.
2. S&P 500 Top & Worst Performers
In the last 5 trading days, 25% of the stocks in the S&P 500 index rose in value.
The best-performing stocks were:
United Airlines Holdings Inc (UAL, 8%)
Mondelez International Inc. (MDLZ, 6%)
AT&T, Inc. (T, 6%)
Meanwhile, the worst-performing stocks were:
Super Micro Computer Inc (SMCI, -14%)
Albemarle Corp. (ALB, -16%)
Dollar Tree Inc (DLTR, -22%)
In addition, 109 stocks within the S&P 500 reached a new 52-week high, while 11 set new lows. Most of the highs this week came from the Financial 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 is about to cross down its signal line, a bearish 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 4% over the past month, flat in the last three months, and is trading 4% away from its 52-week high.
Breadth: Market participation remains healthy in the long term, as 67% of S&P 500 stocks are trading above their 200-day moving average (SMA). Meanwhile, 45% of the stocks are trading above their 20-day SMA, down from 91% the previous week. A reading above 80% or below 20% typically indicates an overextended trend.
Trends: The trend on the 1-day and 4-hour charts has turned negative, with the index trading below its 21-period exponential moving average.
Key levels: The next resistance level is 5,500. On the other hand, the next support areas are at 5,400, followed by 5,370.
3. Momentum Analysis of the Week
This week's momentum analysis is about the Mega Caps stocks. Using a combination of performance metrics and technical indicators, I've developed a proprietary algorithm to rank 9 mega caps. Based on this approach, I've identified Berkshire Hathaway (BRK.B) and Eli Lilly (LLY) as having the best relative momentum currently.
EARNINGS RECAP
1. Q2 and Full Year 2024 Expected EPS & Revenue Growth
Q2 2024 earnings for the S&P 500 are expected to be up 13%. Excluding the energy sector, the figure is +14%.
Earnings are projected to grow by 10% in 2024, higher than the 9% growth seen on average over the last decade. In the past four weeks, 52% of earnings revisions made by analysts were to increase their outlook.
The forward 4-quarter P/E ratio is 21.1, higher than the average over the past five and ten years.
2. Q2 Earnings Season Summary
498 companies from the S&P 500 index have released their second-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, 45% of the respondents had a bullish outlook on the stock market, decreasing by 6 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 6.2, a slightly 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 40, or a “Fear level, down from 61 last Friday.
THE WEEK AHEAD
1. Economic Calendar
Next week will be about inflation, with two key reports on the agenda. The Consumer Price Index (CPI) report will be released on Wednesday, followed by the Producer Price Index (PPI) report on Thursday. These reports will surely have a market-wide impact, given that it will be the last inflation data before the next Fed meeting.
2. Earnings Calendar
Earnings season continues next week, and 3 companies from the S&P 500, including Adobe and Oracle, 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 Adobe ($ADBE). In this post, I break down key data points around Adobe’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 “HOLD” rating to Adobe.
That’s a wrap for this week’s recap! I hope it helped you understand the market better.
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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 market-overview: main measures are outlined, several different key data-points are being focused into 1 spot, clear conclusions with concise hints on what to do!
The S&P chart this year is continuing to form a perfect historical seasonality pattern. All that is left after a weak September is a strong end to the year. We'll see what we get!