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Stock Market Recap & Outlook (8/25/23) – Is The Market Shaking Off This Correction?

FILE - In this Dec. 1, 2020 file photo, Federal Reserve Chair Jerome Powell listens during a Senate Banking Committee hearing on Capitol Hill in Washington. Federal Reserve officials were convinced last month that the U.S. economy and job growth had slowed as coronavirus cases surged across the country. They noted that the economy's outlook is heavily dependent on the course of the virus. (Al Drago/The New York Times via AP, Pool)

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we leaned moderately bearish, which was a miss as $SPX currently sits at +0.82% for the week. The market neared the levels I was eyeing but didn’t fully get there. The chop up and down gave us a little bit a relief from the market correction that has been occurring for the whole month of august.

This was a light on the data front. New home sales and jobless claims came in better than expected while existing home sales, goods orders, and consumer sentiment came in lower than expected. Homebuilders are continuing to benefit from the strong demand for new home sales as existing home sales are stifled by this challenging resale market. Many sellers are unwilling to sell because they don’t want to lower their price, while buyers are unwilling to buy because prices and rates are multi-decade highs. Both sides seem to be waiting for rates to come down, though it’s uncertain when that will happen.

Interest rates this week moved higher a bit as the 10-year Treasury moved from 4.29% to a mid-week peak at 4.36%. As of this writing, it settled lower than the former at 4.23%. On Friday morning, Powell gave his speech at the Jackson Hole symposium where he said that it is the Fed’s job to bring inflation down to their 2% goal, which they are committed to. Although inflation has moved down and is very much a welcome relief, it is still too high, which suggests more rate hikes could be considered. There is a cumulative probability, per the CME FedWatch tool, of 63% chance of a hike within the next two meetings.

From a technical standpoint, the key levels we discussed last week are mostly still intact. Longer term resistance at 4,600 is obviously in play. Shorter term resistance around 4,460 was strong this week, we rejected down hard from that level on Thursday. That level also coincides closely with the 50-day SMA. We will need big strength from buyers to get back above that level before we hit new highs. Below here is the 0.618 fib level and 100-day SMA right around 4,310-4,320, this is the next level of support if we go there.

Next week we have home price, consumer confidence, and jolts job data on Tuesday, ADP employment, Q2 GDP, and pending home sales data on Wednesday, jobless claims and PCE on Thursday, and the monthly employment situation, construction spending, and ISM manufacturing index data on Friday.

Consumer sentiment indicators mostly improved this week. VIX open interest change, SPX open interest change, equity open interest change, VIX open interest put call ratio, and SPX open interest put call ratio all moved into more bullish readings. The Cboe VIX volume put call ratio and VIX futures moved into more bearish readings.

Last week, investors seemed to get a little too bearish in the near-term. Based on historical seasonality, which has a decent track record, that made the market ripe for a short-term bounce that we saw in the first half of this week. With a larger number of upgrades in the sentiment indicators than downgrades, an outlook of neutral to moderately bullish is what I am expecting next week.

Weekly Market Review

Monday: Stocks had a mixed showing in a low volume session where buy-the-dip action in the mega-caps led to the outperformance of the $QQQ and helped limit losses elsewhere. The major indices had been drifting lower in the early hours before bouncing off their lows with no specific catalyst and closing near their highs for the day.  

Treasury yields, which had been rising and keeping pressure on stocks, started to pullback from their highs around the same time that the stock market hit its lows for the day. The 2-yr note yield settled 8 basis points higher at 4.99%. The 10-yr note yield rose 9 basis points to 4.34%, which is its highest level since 2007. The 30-yr bond yield rose 8 basis points to 4.46%, hitting its highest level since 2011.  

Tesla ($TSLA) and NVIDIA ($NVDA) were top performers from the mega-cap space, up 7.3% and 8.5%, respectively. $NVDA, which reported earnings after the close on Wednesday, traded up after HSBC raised its price target to $780 from $600.  

Some anxiety for Fed Chair Powell’s speech Friday at the Jackson Hole Symposium also contributed to the weakness in the Treasury market today after a Wall Street Journal article by Nick Timiraos discussed why the neutral rate may need to be higher.  

There was no economic data of note today.  

Tuesday: Stocks had a mixed showing in another low volume session that pivoted on Treasury movements. Relative strength from the mega cap space had been driving gains in the morning. The S&P 500 had been trading above 4,400 before slipping lower and then failing on retests. The indices ultimately closed  near their worst levels of the day.  

Weak bank stocks were a notable weight for the broader market after S&P downgraded the credit ratings of multiple banks on concerns of funding risks from rising rates and weaker profitability. Additionally, retailer Macy’s ($M) talked about weakening consumer credit conditions in its business, and that acknowledgment was another weight on the banks.  

Macy’s was down ~14%  following its earnings report and Dick’s Sporting Goods ($DKS) was another big loser after reporting earnings, down ~24%. Dick’s came up well shy of earnings estimates and attributed its disappointing profits and guidance to inventory shrink (i.e. theft). Lowe’s ($LOW) went against the grain, though, and posted a nice ~3% gain after its quarterly report.  

Homebuilders outperformed the broader market, boosted in part by an existing home sales report for July that continued to show a lean supply of homes for sale. The S&P 500 financials sector (-0.8%) saw the largest sector decline due to its weak bank components. The real estate sector (+0.3%), meanwhile, led the outperformers.  

Treasury yields fell overnight before nudging higher after the open. Yields ultimately settled below their highs of the day. The 2-yr note yield note rose 5 basis points to 5.04% and the 10-yr note yield fell 1 basis point to 4.33%.

Economic data for the day included only the existing home sales report for July. Existing home sales fell 2.2% MoM to a seasonally adjusted annual rate of 4.07 million from an unrevised 4.16 million in June. This was also below the estimated reading of 4.15 million. Sales were down 16.6% from the same period a year ago.  

The key takeaway from the report is that the inventory of existing homes for sale remains tight and affordability continues to be impacted by rising prices and higher mortgage rates, all of which is also acting as moving deterrents for existing homeowners.    

Wednesday: Stocks had a strong showing, supported by a drop in rates and strong mega-caps. The indices all closed with gains ranging from 0.5% to 1.6%, although volume was still on the lighter side. Today’s upside moves brought the S&P 500 back above 4,400, which acted as an area of resistance yesterday.  

Market rates started to move lower overnight in response to a batch of soft August PMI data out of Europe. Treasuries extended their rally after the release of softening Manufacturing and Services PMI readings for the US. The 2-yr note yield fell 11 basis points to 4.93% and the 10-yr note yield fell 13 basis points to 4.20%.  

The market reflected fairly broad buying interest under the index surface. Advancers outpaced decliners by a 7-to-2 margin at the NYSE and a 2-to-1 margin at the Nasdaq. 10 of the 11 S&P 500 sectors logged a gain led by information technology (+1.9%), which was boosted by its mega cap components. The energy sector (-0.3%) was the lone holdout in negative territory by the close.  

Economic data for the day included the new residential home sales report, the S&P Global Manufacturing PMI and Services PMI, and the MBA mortgage application index.  

The weekly MBA Mortgage Applications Index dropped -4.2%, down from the prior -0.8%. The refinance index dropped -3%. The MBA’s chief economist stated that “The ARM share of applications increased to 7.6Z%, the highest level in five months, and the number of ARM applications picked up by 4% last week.” It appears that some home buyers are willing to accept interest rate risk after the initial fixed period, indicating that buyers are expecting rate drops in the medium term.  

The preliminary August S&P Global US Manufacturing PMI reading came in at 47.0, down from the prior 49.0. The preliminary S&P Global US Services PMI came in at 51.0, down from the prior 52.3. The composite reading hit 50.4, a 6-month low and down from the prior 52.0. This latest reading signaled the weakest output since February as persistent challenges in manufacturing demand were accompanied with slower growth in the services sector.    

July New Home Sales came in at 714K, beating the expected 701k and prior 648k. The key takeaway from the report is that new home sales activity, which is measured on signed contracts, was driven by sales of more moderately priced homes as higher building costs crimped the supply of lower-priced homes while higher mortgage rates contributed to affordability pressures across the spectrum.  

Thursday: The indices closed with sizable losses on the heels of NVIDIA’s blowout earnings report that was filled with much better than expected Q3 guidance and a new $25 billion share buyback plan. Things looked different at the open, though, with many stocks building on yesterday’s gains. Mega-caps stocks rolled over quickly and never regained their opening momentum. Ultimately, the indices closed near their lows of the day.  

The disappointing price action after NVIDIA’s report likely caught many participants by surprise and became its own downside catalyst, which increased selling interest. Weak semiconductor stocks were another weight on the broader, falling prone to a sell-the-news reaction.  

Other notable laggards included Dow component Boeing ($BA) which said a new flaw found in the 737 MAX will slow deliveries in the near term, T-Mobile ($TM), which said it is going to cut approximately 7% of its staff, and Dollar Tree Stores ($DLTR) which disappointed with its Q3 outlook.  

Treasury yields settled slightly higher, keeping pressure on stocks, following another encouraging initial jobless claims report. The 2-yr note yield rose 8 basis points to 5.01% and the 10-yr note yield rose 4 basis points to 4.24%.  

Economic data for today included the initial jobless claims report and durable goods orders.  

Initial jobless claims decreased by 10,000 to 230,000, under the expected 240,000, while continuing jobless claims decreased by 9,000 to 1.702 million. The leading indicator of initial claims is still leading the market to believe that the labor market remains tight, which is something that won’t escape the Fed’s eye.    

Durable goods orders fell 5.2% MoM in July to $285.9B, below the expected -4%. Excluding transportation, durable goods orders increased 0.5% MoM to $187.2B. The key takeaway from the report, other than July’s weakness was driven predominately by transportation, was that business spending occurred at a moderate pace, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.  

Friday: The stock market finished the day in an upbeat manner that saw the indices settle near their best levels of the day, despite the low volume. The gains were put into question shortly after Fed Chair Powell gave his much anticipated speech at the Jackson Hole Symposium. There were some efforts to spin that speech as being more hawkish than expected as the market retreated into negative territory, yet the speech didn’t contain any surprising revelations.  

Powell stuck by the Fed’s 2% inflation target and reiterated that the process of getting inflation back down to 2% still has a long way to go. He acknowledged that the Fed would raise rates again if it is appropriate. These are all things he said following the last FOMC meeting. Unsurprisingly, Powell also omitted any speak on rate cuts or their timing.  

The stock market regrouped and got back on a winning track. It did so with the help of renewed buying interest in the mega-cap stocks and some generally broad-based buying interest that left all 11 S&P 500 sectors in positive territory by the closing bell.  

Boeing ($BA) was the best-performing component in the $DIA one day after being the worst performing component in the Dow Jones Industrial Average. The turnaround was helped by a Bloombergreport that Boeing is getting ready to resume deliveries of its 737 MAX to China.  

The Treasury market had its own ups and downs as the 2-yr note yield went as high as 5.10% before settling at 5.05%, up 4 basis points from yesterday’s settlement. The 10-yr note yield touched 4.27% soon after Fed Chair Powell’s speech but settled the day unchanged at 4.24%. The low for the S&P 500 today coincided roughly with the 10-yr note yield hitting its high for the day.  

Economic data for the day included only the University of Michigan Consumer Sentiment Index reading for August. It came in at 69.5 versus the preliminary reading of 71.2. The final reading for July was 71.6, which marked the highest level since October 2021. In the same period a year ago, the index was at 58.2. The key to the report is that if consumers think the rapid improvements seen in the economy in the past three months have moderated, then they’ll be more tentative about the outlook ahead.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week. I have also started a Twitch Channel called Games N Gains! Every Thursday at 6PM MST I go live to hang out, play games, and chat with y’all about stocks, charts, fundamentals, and anything else you like! I hope to see you there!

Regards, Dividend Dollars

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Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (8/4/23) – Macros Keeping A Ceiling On Stocks

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week’s call of moderately bullish to neutral was a huge miss with the S&P 500 being down -1.60% for the week. However, we have said for two weeks in a row now that we would not be surprised to see a pullback.

Earnings season is winding down with approximately 84% of companies in the S&P 500 having reported so far. So far, they have beaten expectations on an EPS basis 80% of the time and on a revenue basis only 58% of the time.

On the economics front, this was a busy week for data. Employment figures continue to beat expectations while PMI, ISM, and construction figures are all worse than expected.

From a technical perspective, the key area of resistance that we have been watching (red channel) resulted in a strong rejection this week. Price action went under the 0.786 fib level and stayed under it for all of Thursday. Friday tested the level, but failed to get above it and ended the day in deep red. With the next fib level of 0.618 being nearly 4% away at $4,310, I’m looking closer for support. The white line at $4,450 will be my key level before determining if $4,310 is next.

The other chart that we have been eyeing has progressed interestingly this week. All the red this week has us closing perfectly on the bottom level of the ascending channel that the market has been in since the debt ceiling was resolved. I’ll be very interested to see if we get the continuation bounce next week that this channel is indicating.

Sentiment indicators adjustments were a little mixed this week, if not slightly bearish. VIX open interest change, VIX OI put call ratios, CBOE Equity volume put call ratios, and VIX levels all worsened. However, only VIX OI appears bearish, the rest all moved down to more neutral territories. Meanwhile, SPX OI change improved to moderately bullish, while CBOE VIX VCPR moved to neutral and OCC Equity VPCRs moved to volatile.

Overall, rising treasury rates throughout the week, with the exception of Friday, kept downward pressure on the markets. Volatility was enhanced by the US credit downgrade by Fitch on Tuesday and the technical resistance on equities. Tuesday was the largest daily decline on SPX since late April, while VIX jumped to a 3-week high. Market’s calmed down by week end as economic data came in, however, there’s more to come next week with a CPI reading on Thursday and PPI reading on Friday.

Given this, next week’s performance will largely be determined by the reception of those reports. Regardless of the reports, sentiment indicators report neutral on price action for next week, while nearby technical support levels could provide some upside. Given the overall mixed bag here, I am leaning neutral for next week.

Weekly Market Review

Monday: The market was mostly flat on the index levels, before eking out slim gains to end the day and the month. Many stocks took part in the late afternoon rise as the $RSP equal weight ETF was up +0.3% compared to the +0.1% $MGK growth ETF.  

The timid action in the early hours seemed mostly to anticipation for the busy week of earnings and data in later in the week. Despite the hesitancy, market breadth was positive as winners beat losers by 5-to-2 at the NYSE and 5-to-3 at the Nasdaq.  

Data for Monday included only the Chicago PMI report, which came in at 42.8. This is a beat on the prior reading of 41.5, but fell short compared to the expected 43.0.    

Tuesday: The market experienced some selling pressure to begin August, though the downside moves were relatively modest. Selling interest was pushed by rising market rates and the feeling that a consolidation was overdue. With Tuesday’s losses, $SPX was still up 19.2% for the year. The 10-year treasury yield closed above 4.00%.  

The Dow outperformed with +0.2% on the back of a big move higher from $CAT’s well received earnings report. Other notable earnings resulted in large sell offs for $NCLH, $UBER, and $ZI.  

Economic data for the day included the S&P Global US Manufacturing PMI, the ISM Manufacturing Index, the total construction spending report, and the JOLTs job report.  

The US Manufacturing PMI rose to 49 in the July reading, up from 46.3 in June. Their chief business economist mentioned that producers are clearly shrugging off recession fears, but manufacturing continues to be a drag on the US economy. Lower demand and the shift in spending from goods to services has led to a drop in orders, however, the rate of decline in the order book is moderating.    

The ISM Manufacturing Index rose to 46.4% in July, up from 46% in June but below the expected 46.8%. The line between contraction and expansion is 50%, making this reading the 9th straight month in contractionary area. The takeaway from the report is that there are more signs of employment reductions in the near term to better match the state of production. This is in line with the Fed’s thinking that rate hikes will lead to some softening of labor.    

Total construction spending rose +0.5% MoM in June, compared to a +1.0% move in May and an expected +0.6% reading for this month. Total private construction was up +0.5% MoM and total public construction rose +0.3% MoM and +3.5% YoY. Residential spending continues to be powered by new single-family construction to meet the demand that the existing home market leaves unanswered for.    

JOLTs job openings were at 9.58M in June, below the 9.61M estimate & down from 9.82M last month. Both the number of hires and separations decreased during the month.  

Wednesday: Wednesday gave us a solid sell-off with mega caps and growth stocks pacing broad losses. Jump in yields on Wednesday gave investors an extra excuse to take risk off.  

In the overnight, market rates had been moving lower despite the news that Fitch Ratings downgraded the US’s credit rating to AA+, down from AAA. The downgrade reflects an expected fiscal deterioration over the next few years, growing government debt, and erosion of geopolitical relationships.  

Treasury yields immediately started to climb higher with the release of the ADP employment report. This jump sent the 10-year past its high from July to a level not seen since early November (4.126%). Yields backpedaled from the high of the day. Regardless, the rates did pressure equities as $MGK witnessed a -2.1% loss on the day.  

Economic data for Wednesday included the MBA mortgage Applications index and the ADP employment change report.  

The weekly MBA index showed that mortgage applications fell -3.0% with both purchase applications and refinance applications falling -3.0%.  

The ADP employment change showed a 324k increase in private sector payrolls in July, compared to an expected 185k and a prior 455k in June. Annual pay was up +6.2% YoY. The economy is doing better than expected and a healthy labor market continues to support household spending, says ADP’s chief economist. They expect to continue to see a slowdown in pay growth without broad-based job losses. In line with the trends we’ve discussed from the PMI data, manufacturing and services job figures are down and up, respectively.    

Thursday: The stock market had a mixed showing with mega caps driving a lot of the movement. Losses were large right out the gate, but they climbed back by midday. The day was largely a reaction to a lot of earnings that were released after hours on Wednesday, more movement in the treasury market, a rate hike by the BoE, and more discussion on the Fitch ratings downgrade.  

Treasuries started to widen their losses after the releases of a better-than-expected report on productivity and unit labor costs. Weekly initial jobless claims grew slightly but are still at strong levels. Meanwhile, the ISM Non-Manufacturing index showed that services sector growth decelerated in July.  

Ultimately, the day ended with slim losses, showing some resiliency among calls for pullback. Economic data for the day included the Q2 productivity prelim, weekly initial claims, the services PMI, June factory orders, and the ISM non-manufacturing index.  

The Q2 productivity report came in at +3.7%, beating the expected +1.7% and the prior -1.2%. Q2 unit labor costs were at 1.6%, compared to an expected 2.7% and a prior 3.3%. The key here is that the pickup in productivity and deceleration in unit labor costs is a great combination for the soft-landing view.  

The weekly initial claims report came in at 227k, up slightly from the expected 225k and the prior 221k. Continuing claims came in at 1.7M, compared to the prior 1.679M. Overall, employment levels are still strong, a key factor contributing to a positive economic outlook.  

The June factory orders report came in at 2.3%, compared to an expected 2.0% and the prior 0.4%. Business spending was on the softer side in June.    

The ISM Non-Manufacturing Index came in at 52.7%, compared to an expected 53% and the prior 53.9%. The services sector activity expanded in July, but at a slower pace than in Juna. The report said that the majority of respondents are cautiously optimistic about business conditions and the economy. Lastly, the S&P US Services PMI came in at 52.3, compared to the prior 54.4. Another decelerating reading.

Friday: Indices were choppy as investors reacted to earnings from $APPL and $AMAZN, the July employment report, and continued treasury moves.  

Treasury rates had a pullback in response to the jobs report, which showed a slowdown in nonfarm payroll growth. That factor also had the markets consider more the idea that this may be enough for the Fed to hold rates. The 2-year note fell 12 basis points and the 10-year note fell 13 basis points.  

Stocks found some upside momentum on the backs of those items, after bouncing off of the 4,500 level. Indices were trading up until selling in the afternoon hit. There was no specific catalyst for the sell off, but profit taking was likely the cause. Ultimately, indices closed near their lows of the day.  

Economic data was only the Employment Situation Report. Nonfarm payrolls rose by 187k, a bit lower than the expected 200k but a bit higher than the prior 185k. Nonfarm private payrolls rose 172k, under the expected 175k and beating the prior 128k. Average hourly earnings rose by 0.4%, just higher than the expected 0.3%. The unemployment rate fell to 3.5%, beating expectations by 0.1%. The key in the report is that labor supply continues to be tight, making it difficult to achieve a more Fed-pleasing moderation in wage growth. That might not translate to another rate hike, but it does fit the notion that the Fed may be inclined to keep the policy rate higher for longer.    

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week. I have also started a Twitch Channel called Games N Gains! Every Thursday at 6PM MST I go live to hang out, play games, and chat with y’all about stocks, charts, fundamentals, and anything else you like! I hope to see you there!

Regards, Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (7/28/23) – The Market That Can’t Be Shaken

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week’s call of moderately bullish to neutral was pretty spot on. The market was mostly bullish for the week, except for the steep sell-off on Thursday that nearly brought $SPY back to break even for the week.

Earnings season has reached its peak this week, with many big tech names reporting. 262 of the 500 S&P companies have reported, roughly 81% have beat EPS expectations and 58% beat sales expectations. The theme for this earnings season seems to be “better than feared” as YoY growth in earnings is down -1.8% versus an expected -6.8%. Revenues are actually 2.0% higher YoY.

This week was heavy with economic data, most of which either exceeded or were close to expectations. Initial Jobless Claims came in low, with its smallest reading since February of 2018. The first estimate for Q2 GDP came in at +2.4%, well above most estimates. The Q2 GDP price index (a figure that is similar to CPI) helped show the impact of continued inflation. Inflation is still weighing on nominal GDP growth, which came in at +4.6% QoQ, but when adjusting for inflation we end up with only +2.4% real GDP. Plus we had the Fed rate hike decision on Wednesday, which resulted in another 25 bps hike.

For the technical analysis this week, let’s remind ourselves some of what we said last week. Part of that was I wouldn’t be surprised to see a pullback at some point, and Thursday looked as if it was going to be beginning of that pullback. Technical resistance at the 4,600 level and a Treasury yield spike caused by the Bank of Japan announcing yield curve control policies, triggered the sharp fall that day. However, also like I said before, bullish momentum is strong, and we got a terrific bounce back on Friday.

The run up this week had prices get close to the top of the green ascending channel in the above chart. Thursday brought us a strong rejection, but prices recovered very well on Friday. Prior to the Thursday flush, prices pushed into 4,580 – 4,630 range that we called out last week as the next level of resistance, that range is the blue channel in the below chart. What I really like to see about this flush is the fact that prices came back down perfectly to the 0.786 fib level near 4,535 and bounced perfectly. That tells me that the support in that area has solidified and is strong, especially if it stopped a rug pull candle like Thursday.

Sentiment indicators mostly improved this week. Vix open interest change, VIX open interest put call ratio, equity volume put call ratio, and vix futures all improved to bullish/moderately bullish levels. ETF open interest changes and indices volume put call ratios both worsened to moderately bearish levels.

Overall, economic data was decent this week. The economy is still growing at a stable pace, labor markets are still strong, and consumers are still spending. The Fed has removed recessions from their forecasts. All these things, plus a decent earnings season, and a mild week for economic data next week may limit the downside risk. However, technical resistance here could prove to be strong. For that reason, I’m keeping my outlook as moderately bullish to neutral, a pullback seems less likely next week than it was this week, but I think the market still feels one creeping around the corner.

Weekly Market Review

Monday: Markets inched higher on Monday as the $DIA hit its 11th consecutive day of gains. There was low volume on the day where winners outpaced losers.

Treasuries started the day with gains after discouraging PMI readings came out of the eurozone. However, the US PMIs reading were a little better with mixed results. We showed improvements in manufacturing while services activity slowed.

Yields ended up closing near their highs for the day as investors digested an okay 2-year note auction and prepped for the $43B 5-year note auction on Tuesday. The 2-year yield rose to 4.88% and the 10-year yield rose to 3.86% on the day.

The flash July reading of the S&P CoreLogic Manufacturing PMI rose more than expected to a reading of 49.0, up from 46.3. A reading below 50 represents contraction in the sector, so we are trending in a direction that will get us out of that concerning area. The Services PMI fell to a reading of 52.4, a slightly bigger decline than expected.

Tuesday: The indices closed with gains today after the S&P 500 and the DIA hit new 52-week highs. The DJIA also hit its 12th straight day of wins. Mega cap strength helped to boost this performance.

Blue chips dominated the earnings calendar in yesterday’s after-hours and today’s early-hours. Most received positive reactions and added support for the market. $PKG, $MMM, $DOW, $GE, $NUE, and $SHW were among the standouts. The July Consumer Confidence report also added to the market support as it came in at the highest reading since July 2021.

The industrial sector was the laggard as it was heavily weighed down by $RTX, who lowered the FCF guidance for the year due to a need to inspect a portion of the PW1100G-JM engine fleet after finding a powdered metal used in production had a contaminant. In other corporate news, $UPS and the International Brotherhood of Teamsters reached a 5-year collective bargaining agreement and $BANC is in discussions to buy $PACW.

Economic data for the day included the FHFA housing price index, the S&P Case-Shiller home price index, and the Conference Board’s Consumer Confidence Index.

The FHFA index rose +0.7% MoM in May following a +0.7% increase April. The Case-Shiller 20-city composite index fell -1.7% YoY in May compared to an expected -1.9% and following a -1.7% move in April.

   

The consumer confidence index jumped to 117 in July, beating an expected 11.1.5 and a prior 110.1 in June. This time last year the index was at 95.3. The uptick in confidence was driven by a pickup in views about current conditions and the outlook, which are an offshoot of better feelings about inflation falling and labor market resilience.

Wednesday: Wednesday was a bit mixed as investors reacted to a heavy batch of earnings, the latest Fed meeting, and Powell’s commentary. The reaction to the 25 basis point rate hike was fairly quite as most of us looked forward to Powell’s press conference. His position was mainly one of none-commitment to any direction for the next move.  

Expectations for a second hike at any of the next meetings this year did not really change. According to the CME FedWatch tool, the probability of a second hike for each of the following meetings are all under 30%.

For earnings, $GOOG and $MSFT had the largest influence as there were some mixed receptions, same with $BA, $KO, $T, and $V. The broader market held up fairly well with a 0.2% gain on the $RSP while the major indices closed closer to flat.

Economic data for the day included the MBA Mortgage Applications Index and the New Home Sales data.

Mortgage applications fell by -1.8% this week, with a surprise drop in purchase applications of -3%. Refinancing activity remained flat.

New home sales fell by -2.5% MoM in June to an annual rate of 697,000 units. This is compared to an expected 722,000 and a prior reading of 715,000 in May. On a YoY basis, new home sales were up 23.8%. New home sales activity, which is measured in signed contracts, was pressured in June by rising mortgage rates that created affordability pressures.

Thursday: Thursday started in full rally mode. $META had terrific gains after its pleasing earnings report and outlook, pushing further buying interest in mega caps.

Stocks started to roll over in the afternoon due to a number of catalysts. One was an announcement that the Bank of Japan is discussing possible changes to its yield curve control policy at their Friday meeting. This created concerns for a possible unwinding of carry trades that have been supportive of asset prices.

That news hit around the same time that the $35B 7-year note auction was met with lackluster demand. Coincidentally, the S&P 500 hit resistance at the test of the 4,600 level. This all occurred around the same time and caused a meaningful rejection as money was taken off the table.

At the NYSE, losers were beating winners by a 7-to-2 margin and a 5-to-2 margin at the Nasdaq. Then, the ECB followed the FOMC with their own 25 basis point hike. However, language on the decision drove some speculation that they may be close to done with raising rates.  

Economic data for the day included the initial jobless claims report, the advanced Q2 GDP report, durable goods orders, the advanced international trade in goods report, and the pending home sales report.  

Initial jobless claims for the week of July 22nd fell by 7,000 to 221,000, better than the expected 233,000. This is the lowest level seen since February. Continuing claims for the week of July 15th fell by 59,000 to 1.69M, also the lowest level since February. The low level of initial claims, a leading indicator, reflects continued job demand strength, so much so that employers are reluctant to give up employees in a tight labor market.

The Advanced Q2 GDP report showed that real GDP grew at an annual rate of +2.4%, beating an expected +1.6% and a prior +2.0% in Q1. Consumer spending slowed to an annual rate of +1.6%, down from a +4.2% in Q1. The GDP Price Deflator dropped to +2.2% from a prior +4.1%. The economy seems to be a long way away from a recession in Q2.

June durable goods orders grew +4.7% MoM in June, compared to an expected +1.0% and a prior +2.0% in May. Excluding transportation, orders grew +0.6% MoM, beating the expected +0.2% but just short of the prior +0.7% in May. New orders were up across most durable goods categories, reflecting resilient demand for an economy that refuses to stop growing.

The June Advanced International Trade in Goods deficit narrowed to $87.1B from $91.1B. Advanced whole sale inventories fell by -0.3% and advanced retail inventories grew by +0.7%.

Pending home sales grew by +0.3% in June, the first gain since February. This figure was expected to fall by -0.5%.

Friday: The market bounced back from Thursday’s sell off, sticking to the winning play of buying weakness. Mega caps favored in that respect, hitting nice gains and propping up the indices. Many other stocks participated in the rally though.

Notable stocks that report earnings included $PG, $INTC, and $ROKU. Also, the personal income and spending report was supportive of a soft landing narrative, which was another source of support. The Bank of Japan surprised markets when it voted to manage its yield curve control policy with more flexibility, saying it will maintain a 0.5% target rate while also offering to purchase 10-year JGBs at 1%. The yen rallied on the news but lost steam as the dollar rallied back.

Economic data for the day included the Personal Income report, the Q2 Employment Cost Index, and the July University of Michigan Consumer Sentiment Index.

Personal incomes grew by +0.3% MoM in June, compared to an expected +0.5% and +0.5% prior reading. Personal spending grew +0.5% MoM, compared to an expected +0.3% and prior +0.2% in May. The PCE Price Index and Core PCE were both up +0.2%, in line with expectations. The takeaway form this report is a combination of solid spending and ongoing disinflation.

The Q2 employment cost index showed compensations increase by +1.0% for the three month period ending in June. This is compared to an expected +1.1% and a +1.2% prior reading for March. The key here is that we are seeing a deceleration in employment costs, which should be comforting for the market and the Fed as a reassurance that a price/wage spiral is not occurring.

The July Consumer Sentiment Index came in at 71.6, compared to an expected 72.6 and prior reading at 64.4. Last July the reading was at 51.5, putting us at a vast improvement in just a year. Outlooks have greatly improved with the slowdown in inflation and the ongoing stability of the labor market.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week. I have also started a Twitch Channel called Games N Gains! Every Thursday at 6PM MST I go live to hang out, play games, and chat with y’all about stocks, charts, fundamentals, and anything else you like! I hope to see you in there!

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Stock Market

Stock Market Recap & Outlook (7/21/23) – A Choppy Week That Was More Concerned About the Next

Photo by Pixabay on Pexels.com

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week, we expected the market to be fairly bullish and anticipated some hesitancy in price action due to the approaching Fed meeting. This was spot on as the market made fair games at +0.7% this week.

59 companies of the S&P 500 reported their Q2 earnings. 48 of them beat EPS expectations. So far, reporting companies have beat EPS 79% of the time and revenue beats 55% of the time. This, paired with positive June retail sales report and continued low unemployment statistics spurred positive price action in the first few days, some of those gains were later given up on Thursday.

From a technical stand point, equities were kept down in April and May (white box) by the regional banking issues and debt ceiling battle. As banking worries subsided and a debt ceiling deal was reached, market breadth began to expand and a week later the +20% mark was reached, triggering the start of a new bull market. The bullishness in the market (green box) began the same day the debt ceiling deal was announced. It also coincides with June 1st being only the second day that the VIX closed below 16. It has closed below that every day since.

Price action this week had us push above my .786 fib level, we came back on tested it on Thursday and bounced higher on Friday. A good confirmation of support at that level in my opinion. Next area of resistance will be in the blue 4,580 – 4,630 range created by the peak in price last March. I expect heavy resistance here, because after that is cleared, new all time highs are the next logical target, yet there are still uncertainties for equities and the economy that has the potential to rear its head and change sentiment. If there’s potential for a 5-10% correction, the time for it to occur may be getting close.

Market sentiment indicators mostly deteriorated this week. SPX open interest change, VIX and SPX open interest put call ratios, VIX volume put call ratio, equity VPCR, and VIX futures all changed negatively this week, half of them deteriorated from moderately bullish levels to neutral levels while the other have went from neutral to moderately bearish levels.

Data is softening and earnings results are heading back towards longer-term trends. The bottom line is that economic data was most disappointing this week and earnings kicking off, bullish momentum appears to have moderated, but still hasn’t disappeared. Technically speaking, a pause in the rally next week seems to be evident in the chart and indicators. Any pause may only be temporary, depending on the reception of the FOMC rate decision on Wednesday and GDP for Q2 estimate on Thursday. I’m leaning moderately bullish to neutral for the next week in the market.

Weekly Market Review

Summary: The market brought us another winning week this week! Buying interest was broad as mega-caps underperformed due to profit taking and valuation angst ahead of mega-cap earning reports. $MGK fell 1% this week while the $RSP gained 1.4%.

Tesla and Netflix were laggards with some consolidation in price action after their better-than-expected earnings. Taiwan Semiconductor was another loser after warning about inventory adjustments due to slowing market demand, they did still report better than expected results though.

Bank stocks outperformed as the heavy schedule of earnings and commentary brought up no concerns of economic headwinds. $BAC, $NTRS, $MTB, $WAL, and $USB all hit nice gains after their reports.  

These results and the week’s data corroborated the view that a soft landing is possible. Initial jobless claims show continued strength in the job market. Housing and retail data were a little softer, but still didn’t sound any alarms. With the soft-landing idea intact, traders were inclined to fade the mega caps this week and buy non-tech and value stocks as evident in a number of value indices outperforming.

8 of the 11 S&P 500 sectors had gains this week. Communications and Consumer Discretionary were the standout losers while Energy and Healthcare were neck and neck for the #1 spot.

Monday: Markets had a solid day on Monday, with a spattering of tickers hitting 52-week highs. There weren’t any meaningful drivers behind the positive price action, it was really just investors forging ahead on the hopeful notion that the US economy will avoid a recessions and that the Fed is close to done raising rates.

Telecoms took a large hit amid concerns about potential liabilities related to the industry’s historical use of lead sheathed cables as noted in WSJ article that came out over the weekend. Afterwards, both companies received a number of downgrades.

Data for the day was only the July Empire State Manufacturing Survey. The survey came in at 1.1, down from the previous reading but higher than expected. The price paid index within the survey fell to 16.7, a continued sign of price moderation.

Tuesday: Tuesday started a bit mixed, but ended with solid gains after several mega caps recovered from early losses. $MSFT was down 1% at its low and surged higher after making a handful announcements, the largest of which is an expanded AI partnership with $META.

Gains for the broader market were driven, again, by hopefulness of a strong US economy. The data for the day helped corroborate this. Bank gains also helped with a number of strong earnings.

Data for the day included the Retail Sales Report, Industrial Production, and the NAHB Housing market index.

June retail sales rose 0.2%, the 3rd straight monthly increase, but less than the 0.5% forecasted. Excluding gas and autos, sales were up 0.3% for the month. The control group of sales, which most closely resembles the consumer spending component of GDP, increased 0.6%, doubling expectations. That last figure is the key takeaway, a solid 0.6% reading is far above levels of an economy in recessionary distress.

Industrial production fell 0.5% in June, the 2nd straight monthly decline, versus expectations of remaining flat. Production still rose 0.7% during the 2nd quarter. Manufacturing was down 0.3% during June. Capacity utilization slid to 78.9%, down from 79.4% in May. The takeaway here is that most major market groups posted declined in June, showing a softening demand that has hurt the manufacturing side of the economy more than other sectors.

Lastly, the NAHB Housing Market Index came in at 56 in July, matching expectations. The previous reading was 55. Current sales and prospective buyers were higher, while expected sales were lower.

Wednesday: Markets opened slightly higher and had choppy action all day, but still managed to get some gains. There was no strength in any selling interest, despite some calls for a pullback after this big market run.

Apple made the news with a report that the company is internally testing AI tools. Goldman Sachs outperformed despite missing on their Q2 earnings. Several other banks were also notable winners on the day.   Data for Wednesday included the MBA mortgage application index and Housing starts.

The MBA mortgage application index rose 1.1% after a 0.9% last week. Refinance applications were up 7% and purchase applications down 1%.

Total housing starts fell 8% MoM to an annual rate of 1.434M compared to an expected 1.475M. Single family starts were down in all regions expect the West. Building permits fell 3.7% MoM to a rate of 1.44M compared to an expected 1.472M. Permits for single family units were flat to positive in all regions. The higher financing costs of the market are creating headwinds for builders and preventing activity from being stronger in a supply-constrained housing market.

Thursday: Stocks were mixed today as concerns of being in overbought territory came up. Mega caps were weak with poor performance in $TSLA, $NFLX, and $TSM in response to their earnings reports. However, the broader market was resilient. $RSP was down only 0.1% compared to 0.7% for $SPY.

Data for the day included the weekly jobless claims and existing home sales reports.

Initial claims for the week decreased by 9,000 to 228,000 (consensus 240,000). That is the lowest level of initial claims since mid-May when the S&P 500 was around 4,100 or 11.4% lower than where it is today. Continuing jobless claims for the week ending July 8th increased 33,000 to 1.754 million. Still, employment levels remain well above recessionary levels.

Existing home sales fell 3.3% MoM in June to a seasonally adjusted annual rate of 4.16 million (consensus 4.25 million) from an unrevised 4.30 million in May. Sales were down 18.9% from the same period a year ago. The takeaway in the report is that the inventory of existing homes for sale is still tight. This is due to a strong labor market, ability to work remotely, and the jump in mortgage rates that are deterring existing homeowner’s from moving. Because there’s a lack of transacting, existing home sales are crimped by limited supply more than by weak demand.

Friday: Friday closed as a mixed day. There wasn’t outsized selling interest, but there wasn’t much buying interest either. The market felt as if we were all waiting and looking ahead to the busy earnings next week and the FOMC meeting.

Still, the broader market held up well as the $RSP was up 0.1% and $MGK was down 0.2%. There was no data for the day.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week. I have also started a Twitch Channel called Games N Gains! Every Thursday at 6PM MST I go live to hang out, play games, and chat with y’all about stocks, charts, fundamentals, and anything else you like! I hope to see you in there!

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update

Stock Market Recap & Outlook (7/14/23) – A Strong Week to Lead Into Earnings Season

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week, I gave a neutral outlook saying to watch my red channel in the chart below for a breakout in either direction. We got the breakout to the upside this week and closed comfortable above it at 4,505 for SPX.

The strength was evident this week. Not only did we have better than expected CPI, PPI, sentiment, and job claims readings, but earnings season also kicked off with a bang! About 6% of the S&P 500 companies have reported, with 82% beating their EPS estimates and 64% beating their revenue estimates.

The two key inflation reports, CPI and PPI, both showed significant easing, though they are still above the 2% target. The CPI fell to +3% year over year compared to the +4% that was seen in May. This beat the 3.1% expectation. The PPI figure came in at just +0.1%, significantly lower than the +1.1% reading in the prior month. Both have been falling steadily for 12 consecutive months.

The lower inflation numbers triggered another rally in stocks this week. The SPC closed a new high for this bull market on Wednesday at 4,510. Based on this new high, the -10% correction line moves up to 4,059 and the -20% bear market line moves up to 3,608.

Again, SPX is reaching a technically overbought area based on the RSI, however it’s difficult to find a future catalyst that could cause any modest pullback. The bulls seem fully in control again. Price action got us to barely touch the 0.786 fib level at 4,528. This level may serve as a potential spot of resistance, but if its able to be cleared, it seems likely that there could be a path to reaching all-time highs again.

There were more sentiment indicator upgrades than downgrades this week. SPX open interest change, SPX OI put call ratio, VIX VPCR, and VIX levels in general improved while equity only equity OI change was slightly worse. With inflation coming down faster than expected, early earnings doing well, high consumer optimism, and relatively mild economics schedule for next week, my outlook for next week fairly bullish. There may be hesitancy in price action as we get closer to the next Fed meeting, but aside from that, I am expecting mostly bullishness.

Weekly Market Review

Summary: The market had a very good week with undeniable bias. CPI, PPI, Import-Index, and employment reports all corroborated the growing notion that the economy will avoid a hard landing.

The CPI report was the headliner for the week with a smaller than expected 0.2% increase. Treasury yields rushed down, and stock prices jumped higher. The 2 year note yield fell 21 basis points to 4.73% this week while the 10 year note fell 23 basis points to 3.82%.

The broader market overcame a weak start for the mega caps on Monday, which aligned with Nasdaq’s announcement that there will be a special rebalancing of the Nasdaq 100 on 7/24/23 to address overconcentration. This will be the first rebalancing since 2011. Mega caps picked up pace throughout the week and outperformed.

All 11 of the S&P 500 sectors made gains this week that ranged from 3.8% for communications (YAY $XLC) to 0.8% for energy. Q2 earnings season went underway and didn’t slow progress in any of the sectors. Delta Airlines, PepsiCo, JPMorgan Chase, Wells Fargo, Citigroup, and UnitedHealth all beat expectations.

Speaking of expectation, the fed funds futures market seemed to be friendly with the CPI report on Wednesday and seemed to cap out prospects of any additional rate hikes after the July meeting. There is a 93% chance of a 25 basis point hike in July, yet the odds of a second hike in the following meetings through the end of the year sit at11%, 53%, and 19.2% according to the CME FedWatch Tool. Several members of the Fed aren’t ready to shut out the prospects of future hikes, regardless the odds show a one and done approach moving forward.

That perspective had some tangible effects on the USD and other central banks. The ECB and BOE are expected to have further to go with their rate hike efforts. The USD index dropped by 2.4%. This move and the soft-landing view led to a jump in commodity prices this week including oil and copper (let’s go $COPX) which rose despite weaker data out of China that sparked calls for policy stimulus.

Monday: We had a strong start to the week. Even though $SPY was only up 0.2%, the broad-based $RSP was up 0.9% and gainers beat losers 2 to 1. Mega caps kept the major indices down as they were slow to start with $AAPL, $GOOG, and $MSFT registering losses.

Their losses followed the news that there will be special rebalance of the Nasdaq 100 ($QQQ) due to concerns of over concentration. This will occur before the open on July 24th.

Even with lagging mega caps, the broader market did well. Small caps, banks, energy, and chips all outperformed.

Economic data for the day was only the May Wholesale Inventories Report. It came in at 0.0% compared to an expected -0.1%. Inventory to sales ratios grew to 1.41 from 1.30.

Tuesday: The market had another good day. Again, mega caps lagged and the broader market performed. However, by mid-day mega caps started to gain momentum and contribute.

There was strong positive bias in the price action as gainers beat loses 3 to 1 at NYSE and 2 to 1 at Nasdaq. Volume was a little low, but that didn’t stop $SPY from gaining 0.7%.

Economic data for the day was only the NFIB Small Business Optimism Survey. Results rose to 91, up from 89.4. It was the highest level in 7 months and the biggest monthly gain since August 2022. Sales expectations were higher though inflation and labor shortages continue to be an issue for small businesses.

Wednesday: Today, the market reacted positively to the CPI reading, leading $SPY and $QQQ to hit new 52-week highs. They pulled back before the close, but still finished with decent gains.

Treasury yields took a plunge in response to the data, acting as another support factor for the market. Expectations for further rate hikes after the July meeting declined in response to the report.

Wednesday’s rally was broad, but mega caps really shined as they had been lagging in the prior few sessions.

The Consumer Price Index for June was up 0.2% MoM, beating the expected 0.3%. Shelter accounted for 70% of the increase. Core CPI was also up 0.2% MoM, again beating the 0.3% expectation. This was the smallest MoM change since August 2021. On a YoY basis, CPI slowed to 3% from 4% in May, marking the smallest increase since March 2021. Core CPI closed to 4.7% from 5.3%. There is clear evidence of promising disinflation for both total and core CPI that should temper worries about the Fed raising rates beyond its July meeting. Even a hike in July seems to be unnecessary in my opinion.      

Thursday: Thursday was another strong day as the S&P closed above 4,500 and Nasdaq Composite settled near its high of the day. Mega caps boosted the indices, but many stocks participated in the rally. The positive was driven by the belief that the economy can pull off a soft landing and that the Fed is nearing the end of rate hikes.

That belief was supported by the better than expected PPI report after yesterday’s CPI report. Positive sentiment was also helped by some Q2 earnings surprises and guidance from $DAL, $PEP, and the $XOM acquisition news. Bank stocks also participated in the rally in anticipation of tomorrow’s earning reports from $JPM, $WFC, and $C, pushing banking ETFs to outperform on the day.

Economic data included the Producer Price Index and initial jobless claims.

The PPI for final demand increased 0.1% MoM, lower than the expected 0.2%. Core PPI also increased 0.1% MoM, beating the expected 0.2%. On a YoY basis, PPI was up just 0.1% while core PPI was up 2.4%. Wholesale inflation pressures are clearly moderating, which should be a boon for profit margins for companies able to retain pricing power. Strong progress in PPI is usually an indicator of further progress on CPI, as the former leads into the latter.

Initial jobless claims for the week fell by 12k to 237k, beating the expected 247k. Continuing claims grew by 11k to 1.729M. Initial jobless claims continue to come in at well below any levels seen in prior recessions. This reflects a continue strong state for the labor market and is supportive of consumer spending growth and a soft landing.

Friday: There was good earnings news for the day from $UNH, $V, $JPM, and $WFC. Good economic news also rolled in from consumer sentiment and import/export prices. Also, positive rating actions for $MSFT and $NVDA occurred.

Despite all the positivity, the market had a meh day. Profit taking seemed to be occurring at the end of the big run this week. 8 of the 11 S&P 500 sectors closed with a loss. Decliners beat advancers by 3 to 1 on the NYSE and 2 to 1 at the Nasdaq.

Economic data for the day included the July University of Michigan Consumer Sentiment Index and the Import Export Price Report.

The consumer sentiment index came in at 72.6, strongly beating the expected 65.6 and the prior 64.4. This time last year, the index sat at 51.5, nearly a 40% improvement. The takeaway here is that sentiment about the economy has improved with the slowdown of inflation and the ongoing stability in the workforce.

For June, import prices fell 0.2% in June and prices were down 6.1% YoY, the largest annual decrease since May 2020. Excluding fuel, import prices were down 0.4% for the month and 1.4% YoY. Export prices dropped 0.9% for the month and 12.0% YoY, the biggest annual decline EVER recorded.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week. I have also started a Twitch Channel called Games N Gains! Every Thursday at 6PM MST I go live to hang out, play games, and chat with y’all about stocks, charts, fundamentals, and anything else you like! I hope to see you in there!

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (5/26­­­­/23) – A Whipsaw Week Fueled on Both Sides By AI and Debt Ceiling Issues

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we called for a neutral to moderately bullish week in the market, and we got exactly that. The market moved slightly higher Monday, dropped hard Tuesday and Wednesday, before climbing back up the valley with strength on Thursday and Friday to end the week slightly in the green.

With the end of this week, earnings season is essentially over with 97% of companies having reported. 78% of companies reported positive EPS surprises with 76% reporting positive revenues surprises. The biggest surprise of all came from the $NVDA AI fueled earnings report. AI seems to have become a hot topic of conversation for this earnings season as a record number of companies mentioned the term in their earnings calls.

Aside from earnings, it was a fairly mild week for economic data. Core PCE came in very close to the estimates showing that inflation is still well above targets and jobless claims were lower showing that labor is still hot.

Technicals-wise, we finally got a little bit of a pull back this week on concerns of the debt ceiling. But then the unprecedented earnings report from $NVDA on Thursday singlehandedly turned things around. SPX, for another week, remains solidly above the 200, 100, and 50-day moving averages and is testing the 4,200 level for the 4th time in just two weeks. At the end of this week, a drop to the bear market low would take a 15% move, while the level needed to declare a new bull market is only 2% higher.

Even though next week is shorter with the holiday weekend, it still brings a good number of data releases. Next week is heavy with labor data releases, plus a consumer confidence reading, and ISM/PMI data. The current employment situation and inflation levels have raised the odds of another interest rate hike and I would be surprised to see if the coming data shifts that much.

As for sentiment indicators, there were a few more upgrades than downgrades. With VIX and ETF open interest changes, VIX and SPX open interest put/call ratio changes, and VIX implied volatility gap moving into more bullish territories while VIX and equity open interest and put call/ratio changes moved downward into neutral territories.

However, much like last week, since the debt ceiling issue is not resolved, this week’s outlook has a dual perspective again. With a no deal debt ceiling and the June FOMC meeting approaching, volatility is expected. On the other hand, if a ceiling deal is reached over the weekend even without being signed into law, a relief rally could result in a moderately bullish week ahead.

Weekly Market Review

Summary:

Much like how I finished this week on an upbeat note leading into the holiday weekend, the market did the same! Major indices saw some volatility as we dealt with a lot conflicting sentiments. Regardless, the SPX closed above 4,200 at its highest level since last August. Uncertainty about the debt ceiling and Fitch’s concerns about the US’s credit rating kept price action in check in the early week. However, by Friday, angst was eased as information on ceiling negotiations were released and $NVDA earnings charged the tech space.

Economic data this week corroborated some Fed members’ concerns that more rate hikes may be needed. Kashkari, Bullard, Waller, and Mester all were cited speaking this week that a pause isn’t guaranteed at this point. The higher-than-expected Q1 GDP report, lower than expected jobless claims, strong consumer spending, and uptick in PCE year-over-year all added to the case that more cooling may be needed.

Mega caps continued their outperformance with $MGK rising 2.2% this week versus a 0.3% gain in the market-cap weighted S&P 500. Meanwhile, the equal weight S&P 500 ETF $RSP fell 1.2%. The technology sector was the standout winner for the week while 8 of the 11 sectors all marked losses over 1% for the week.

Monday:

Monday had mixed action, but ultimately ended the day a little higher than the open, but not with much conviction as debt ceiling concerns were growing over the weekend. Janet Yellen reiterated that early June is the hard deadline for the ceiling and that the odds of the government paying its bills on the 15th are quite low.

Add to that commentary, the commentary from Fed President Kashkari that a decision to pause rate hikes in June is a close call and that a pause would not signify that tightening is over. Fed President Bullard also said that he thinks two more hikes are needed this year.

Stocks didn’t have huge reactions to these catalysts. The market clung to narrow ranges for most of the day while briefly peaking over the 4,200 level a few times. Price action could not hold above it, even with mega caps and bank stocks having a strong showing. The latter was spurred on by news that $PACW had entered into an agreement with $KW to sell a portfolio of real estate construction loans with a balance of $2.6B outstanding.

Tuesday:

Tuesday was another mixed day with no strength on either side of the tape. Mega caps dragged on the market, even though broader equities were holding up okay. Things began deteriorating as more press reports came out that a debt ceiling deal was far from agreed upon. House Speaker McCarthy said that a deal was nowhere near while House Minority Leader Jeffries said there is not a lot of progress being made.

The energy sector was the lone positive closer for the day, as $CVX offered a boost on its stock upgrade from HSBC. Consumer discretionary was down -0.9% as the outperformer, partially supported by $LOW’s earnings report.

Tuesday’s economic data included the IHS Market Manufacturing PMI and the New Home Sales Report. The latter event was up 4.1% MoM in April to an annual rate of 683k units, above the expected 660k and the 656k prior reading. Year-over-year sales were up almost 12%. Higher mortgage rates are holding down new homes sales activity as seen by the sales decline in the higher-priced Northeast and West regions that reflected affordability pressures.

The Manufacturing PMI fell to 48.5 in the preliminary May reading from 50.2 and back into contractionary territory. The Services PMI rose to 55.1 up from the 53.6 May reading, the highest level in 13 months. The Composite PMI was 54.5, also its highest level in 13 months. Overall, growth output seen in May was the fastest in over a year.

Wednesday:

Another weak showing happened this day, lead on by an approaching X-date for the ceiling battles. Reports of an impasse were somewhat corroborated by House Speaker McCarthy who told reporters that negotiations are still far apart on issues, but talks would continue.

The market also had to digest lingering rate hike concerns after Fed Governor Waller said that we need to maintain flexibility on the best decision to take in June… fighting inflation continues to be my priority. These concerns took a back seat to the debt ceiling angst though. The major indices all closed with losses, regardless of the attempted rebound in the late afternoon.

The weekly MBA Mortgage application Index came in Wednesday at 4.6% with a 4% drop in purchase applications and a 5% drop in refinance applications. With the average rate of a 30-year mortgage reaching its highest level since March, borrowers continue to be deterred.

Thursday:

Thursday was a mixed showing on the back of many news catalysts. The biggest one was $NVDA’s huge gain after reporting strong Q1 results with very optimistic Q2 guidance. $NVDA’s results fueled buyers in other semi’s and mega-cap stocks that propped up the broader market. Still though, market breadth reflected underlying weakness as Fitch watchlisted the US’s credit rating and Congress members reported their day off on Monday in spite of much needed continued negotiations. However, progress did seem to be made on negotiations and news said differences are narrowing.

Pleasant economic data with the Q1 GDP, jobless claims, and pending home sales came in.

US GDP growth during the Q1 period was revised higher to 1.3%, up from 1.1% in the initial estimate. The change was mainly a result of an upward revision to private inventory investment. Consumer spending was revised slightly higher to 3.8%, a good sign in spite of the ongoing inflation pressures.

Initial jobless claims rose less than expected to 229,000, vs estimates of 245,000. Claims were at 225,000 last week. Continuing claims were slightly lower at 1.79 million. Claims continue to be nowhere near recession levels and continue to reflect a hot labor market.

Pending home sales were flat in April, missing expectations of 1.0% growth. Pending home sales are down 20.3% YoY. Sales were up 3.6% in the Midwest and 4.7% in the West.

Friday:

Friday saw the market end the week on an upbeat note. Ceiling concerns seemed to ease somewhat as an solution was anticipated to be near. Mega-caps continued to boost the indices with economic data pointing to a resilient economy. Semiconductor stocks also continued to rally, with $SOX hitting a 6% gain after $MRVL reported good earnings and guidance.

The rally for the day was not weakened by rising concerns of another rate hike at the June meeting. According to the CME FedWatch Tool, there is a 64.2% chance of a 25 point hike, up from 51.7% yesterday and 13.7% a month ago. This followed the economic data releases for the day which showed strength and quelled worries of a hard landing. This data included the personal income and spending report, durable goods orders, trade in goods report, and consumer sentiment.

Personal income was up 0.4% MoM in line with expectations and above the 0.3% seen prior. Personal spending was up 0.8% MoM above the expected 0.4% and the 0.1% seen prior. The PCE Price index was up 0.4% MoM above the expected 0.3%. This was up 4.4% YoY versus the 4.2% seen last month. The Core PCE Price index was up 0.4% MoM above the expected 0.3% and was up 4.7% YoY versus the 4.6% seen last month. The 0.5% increase in real spending and the uptick in the YoY rates are the key takeaways here. This combination gives the Fed a reason to second guess if a pause is the right move now.

Durable goods orders rose 1.1% MoM in April versus an expected -1%. Excluding transportation, orders fell 0.2% MoM, lower than the expected -0.1%. The key in this report was that non-defense capital goods orders (a proxy for business spending) were up 1.4% MoM, a good sign.

The advanced international trade in goods report for April showed a growing deficit to $98.6B from an upwardly revised $82.7B deficit in March. This gap grew substantially as exports were $9.5B less than in March and imports were $4.5M more. Retail inventories jumped 0.2% while wholesale inventories fell by the same amount.

Finally, the University of Michigan Consumer Sentiment index hit 59.2 in May versus an expected 57.8. This is also higher than the preliminary reading of 57.7 but down from the April reading of 63.5. This time last year, the reading was slightly lower at 58.4. Consumer sentiment improved from mid-month, yet worsened from April as worries about economic outlook increased.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (5/19­­­­/23) – A Strong Week Among a Continued Unsolved Debt Problem

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we ended the outlook with neutral outlook call, which appeared to be correct up until mid-week. Q1 earnings season is nearing a close after this week, with 94% of companies having reported. 78% of companies reported a positive EPS surprise and 76% reporting positive revenue surprises. Despite the positive surprises, blended earnings results look to be -2% lower than the prior quarter, marking a second straight decline in earnings for the S&P 500.

What’s even more interesting is that more S&P 500 companies than normal have commented on a “recession” during their earnings calls. 107 companies used the term, which beats the 5 year average of 77 and 10 year average of 59 by a considerable margin. Unsurprisingly, the financials sector discussed it the most. However, it should be noted that this statistic appears to have peaked in Q2 of 2022.

Regardless of the earnings fun fact, this was a slow week for market data (yay these weeks make my job easier)! Initial jobless claims came in lower than expected and lower than last week, showing that jobs are still hot. The reading came in at 242k, the 15th consecutive week it has been above 200k. Housing data continues to come in hot. Retail, on the other hand, fell flat of expectations but was still positive. Next week we have new home sales on Tuesday, jobs, GDP, and pending home sales on Thursday, and PCE and sentiment on Friday.

For technicals, stocks continue to shock and confuse bears and naysayers. They continue to perform better than expected, especially with the unresolved debt ceiling battle. With a 1.8% gain on SPX this week, the chart has reached its strongest position year-to-date. It closed well above all major averages and is poised to break above the 4,200-resistance level (a level that has held for 7 straight weeks). At this point, falling back to the bear market region would require a 15% drop, while a rally to the bull region is now only 2% away.

Most indicators had positive moves this week, including the SPX open interest change, the VIX implied volatility gap, and the VIX futures levels. The composite levels of the indicators are primarily neutral or moderately bullish.

As for next week, the most important item is the PCE reading, as it is the Fed’s inflation gauge and a number of Fed speak this week reaffirmed the fact that their decision would be led by data. If we want a rate pause, this reading had better be good. However, since the next Fed meeting is still three weeks away, the PCE may not matter much in the near-term. If we assume this weeks positive moves were based on debt-ceiling optimism, it may not be shocking to see a quick decline if/when it happens. That may seem contrarian, but it is a buy-the-rumor and sell-the-news approach.

If there is no debt ceiling resolution, the whole picture points to more bullishness. If/when the debt ceiling is breached or lifted, volatility is the expectation, but direction will be determined by the catalyst.

Weekly Market Review

Summary:

The major indices gained this week, breaking a 6-week period of less than 1% moves for the S&P 500. The index reached new closing and intraday highs for the year but failed to maintain a position above 4,200, a level of strong resistance. While mega-cap stocks supported the index’s performance, the breadth of gains was wider this week. The S&P 500 rose 1.7%, while the Vanguard Mega Cap Growth ETF ($MGK) up 2.9% (why did I sell!) and the Invesco S&P 500 Equal Weight ETF (RSP) up 1.0%.

Signals were mixed this week. Optimism about a debt ceiling deal emerged after President Biden’s meeting with congressional leaders, but it waned when debt limit talks were paused according to Jake Sherman, a reporter for Punchbowl News. Some Federal Reserve officials expressed hawkish views, with Dallas Fed President Logan stating that current data doesn’t support a pause in June and St. Louis Fed President Bullard acknowledging the need for further rate hikes due to persistent inflation.

Treasury yields saw a decrease in the safety premium, especially at the short end of the curve, as investors considered the possibility of the Fed raising rates at the June FOMC meeting. The 2-year note yield rose by 29 points to 4.27%, and the 10-year note yield increased by 23 points to 3.69%. The bond market also reacted to positive sentiment about debt ceiling talks and favorable performance in regional bank stocks, with the SPDR S&P Regional Banking ETF (KRE) rising 7.8% and Western Alliance (WAL) experiencing a 24.9% increase on news of deposit growth.

Earnings reports from key retailers marked the week, with mixed reactions seen for Dow components Home Depot ($HD) and Walmart ($WMT). Target ($TGT) received a positive response, while Foot Locker ($FL) faced a significant decline of 27% after reporting disappointing earnings and issuing dismal guidance. The majority of S&P 500 sectors recorded gains, with information technology, consumer discretionary, communication services, and financials leading the way. However, the utilities sector experienced the largest decline, followed by real estate.

Monday:

Monday ended on a relatively positive note, although the price action was dismal with below-average volume. The major indices closed near their daily highs, posting modest gains. While there was initial weakness in mega-caps, some stocks in this category rebounded to finish with gains, contributing to the overall performance. Meta Platforms ($META) stood out with consistent outperformance after receiving an upgrade, while the Vanguard Mega Cap Growth ETF ($MGK) closed with a 0.2% gain.

The market’s inclination to buy mega-cap stocks reflected concerns about the uncertain debt ceiling situation, as President Biden’s meeting with congressional leaders on the topic approached. Regional bank stocks experienced a rally, providing support to the broader market. The SPDR S&P Regional Banking ETF ($KRE) had a 3.2% gain, and the S&P 500 financials sector closed near the top of the leaderboard with a 0.8% increase.

In terms of M&A activity, Newmont plans to acquire Newcrest for approximately $19 billion, and Oneok plans to acquire Magellan Midstream Partners for around $18.8 billion, including assumed debt. The market also saw positive regulatory developments, as EU regulators approved Microsoft’s acquisition of Activision. On the economic data front, the New York Fed Empire State Manufacturing Survey had a significant decline, with the new orders index dropping 53 points to -28.0, pointing to a sharp decrease in demand.

Tuesday:

The market looked in step with previous days, with limiting factors keeping it in check while gains from mega-cap stocks provided some support. However, the major indices closed near their lowest levels of the day following news that President Biden would be cutting his G-7 trip short. There was no information available about Tuesday’s debt ceiling meeting, but House Speaker McCarthy noted that the two sides remained far apart, while Senate Majority Leader Schumer emphasized the need for bipartisan agreement to avoid a default.

Despite losses in the overall market, gains in the mega-cap space helped mitigate the decline. The Invesco S&P 500 Equal Weight ETF ($RSP) dropped 1.4%, while the Vanguard Mega Cap Growth ETF ($MGK) recorded a 0.1% gain. The Dow Jones Industrial Average experienced the largest decline, partly due to Home Depot’s disappointing fiscal Q1 sales and guidance.

Retail sales data for April were released, indicating a 0.4% increase in total retail sales, but adjusting for inflation showed essentially flat sales, implying weaker demand. China also reported weaker-than-expected retail sales, industrial production, and fixed asset investment for April, contributing to concerns about global growth. Additionally, the FTC’s lawsuit to block Amgen’s acquisition of Horizon Therapeutics weighed on the stock and added further headwinds for equities.

Economic data for Tuesday included the April retail sales, industrial production, and the NAHB housing market index.

Retail sales came in at +0.4%, under the expected 0.7%. These readings are not inflation adjusted, so when making that adjustment, the reading is closer to flat. Growth in sales, therefore, was mostly due to price increases and not necessarily an increase in demand.

The industrial production report came in at +0.5%, compared to a flat expectation. Capacity came in just 10 basis points under the expectation at 79.7%. Manufacturing output bounced back in this reading, supported by gains in the output of vehicles and parts, defying a hard-landing economic scenario.

The NAHB housing index came in at 50, the 5th straight monthly increase and the highest level since July 2022. The index was expected to be flat at 45. Current sales, expectations, and buyer traffic were all higher.

Wednesday:

The stock market was soft right out of the gate, but found upside momentum. Gains built, aided by some short-covering activity. The major indices all closed near their best levels of the day.

Positive responses to earnings and other corporate news, along with an emerging hope that the president and congressional leaders are more aligned with debt ceiling negotiations, pushed things higher. Still, no deal has been reached and uncertainty remains in play. That uncertainty was not enough to offset Wednesday’s strong showing, a potential pro-cyclical bias.

Many stocks came along for the rally; 9 of the 11 S&P 500 sectors closed green. The financials sector lead with 2.1%. This came after Western Alliance ($WAL) said its deposits have increased by more than $2 billion since the end of the first quarter. This news put a bid in the bank stocks and the SPDR S&P Regional Bank ETF (KRE) jumped 7.4%.

Economic data included the MBA mortgage applications, housing starts and building permits.

The Mortgage Applications Index fell 5.7% with purchase applications falling 4.8% and refinancing applications falling 8.0%.

Total housing starts increased 2.2% MoM in April to a seasonally adjusted annual rate of 1.401 million compared to a consensus of 1.405 million. Single-family starts were up 1.6% MoM, but only because of a strong 59.5% increase in the West; single-family starts fell in all other regions.

Building permits fell 1.5% MoM to 1.416 million from an upwardly revised 1.437 million  in March. Single-unit permits rose 3.1% MoM, led by gains in all regions. The weakness in permits was driven by a 9.7% decline in permits for 5 units or more.

The key takeaway here is that single-family starts and permits were up, which is a positive given the tight supply of existing homes for sale. Even so, the constraints of high financing rates and high prices are evident in single-unit starts being down 28.1% year-over-year and single-family permits being down 21.2% YoY.

Thursday:

It was another good day for stocks, building on Wednesday’s gains. The major indices traded in mixed fashion until a late afternoon surge higher. That move saw the S&P 500 break the 4,200 level for the 1st time since August 2022. Ultimately, the S&P 500 closed at its best level of the year, just a whisker shy of 4,200.

The midday lull was probably ongoing hesitancy about the debt ceiling. House Speaker McCarthy said he “sees a path” to getting the debt limit bill on the House floor for a vote next week, yet other press reports suggest a debt ceiling deal won’t be easy to reach.

Market participants were also reacting to some mixed economic data, including lower-than-expected jobless claims, a better-than-expected Philadelphia Fed Index for May, and weaker-than-expected existing home sales and leading economic indicators for April.

Nonetheless, the afternoon rally was fairly broad based, ratcheting up as the mega cap stocks took another leg higher along with the semiconductor stocks both having several names reaching new 52-week highs.

Friday:

The stock market kicked off this options expiration day on an upbeat note, but ultimately rolled. Opening gains had the S&P 500 back above the 4,200 level before the market turned lower middaywhen Fed Chair Powell began speaking at a panel discussion regarding perspectives on monetary policy.

However, stocks seemed to be responding to worries about the debt ceiling and regional banks, rather than Mr. Powell’s comments. Briefly, Mr. Powell said that inflation is “far above” the Fed’s objective, but also said that rates may not have to rise as much because of credit conditions. These views were comparable to what he shared during his press conference following the FOMC meeting earlier this month, so they weren’t necessarily surprising.

What was surprising was the prior mentioned tweet from reporter Jake Sherman that “debt limit talks between the White House and House Republicans have been paused, per multiple sources involved in the talks.”

Ultimately, the major indices were able to climb somewhat off their lows to close with modest losses; however, the S&P 500 remained pinned below 4,200 on a closing basis.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update

Stock Market Recap & Outlook (5/12­­­­/23) – Debt Ceiling Concerns Overshadows Inflation Progress

This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

Dividend Dollars’ Outlook & Opinion

Last week we ended the outlook with a call that the early week would be fairly directionless leading into CPI, which could then lead to a green week on positive inflation reception. We were only half correct here, we nailed the catalyst and the lead up, but not the direction afterwards.

The Consumer Price Index report rose 4.9% for April year-over-year, down from 5% in March and the 5% consensus. The Producer Price Index came in at 2.3% for April, down from 2.7% in the prior month and under the 2.5% consensus. Both readings are still well above the Fed’s 2% inflation target, though they have been steadily falling since June of last year. Historically, both reports tend to have an outsized effect on the market (CPI more so than PPI), however, this go around they seemed to be overshadowed by debt ceiling concerns that muted their effects. Earnings surprises also seem to have muted moves up in stock price, likely for the same reason.

The Q1 earnings season wrapped up this week with 32 S&P 500 companies giving their reports. 21 of them beat EPS estimates. On average, this season has beat EPS estimates 78% of the time which is above the 10-year average of 73%. Despite the strong performance in earnings, the average stock price appreciation after an earnings beat was 0.3%, compared to a 5-year average of 1%. Meanwhile, companies that reported a surprise to the downside experienced and outsized moved down of 4.1% on average compared to the 5-year average of down 2.2%. The numbers show that the market is rewarding positive surprises less while punishing negative surprises.

While $SPY and $VIX were fairly flat this week, the technical have not changed much. Stocks continue to prove the naysayers and recession doomsday-ers wrong by performing better than most expected for 2023. SPX remains well above is significant moving day averages and the consolidation around 4,100 is not in its 6th straight week. At these levels, falling back down to the bear market low from October would take a 13% decline while a move higher needed to declare a new bull market is less than 4% away. It seems nothing is really moving the market much at the moment, despite debt ceiling battles, inflation, and ongoing recession warnings.

Next week’s economic calendar is light. With inflation continuing to moderate, political analysts expecting a debt ceiling deal, and a labor market hardly showing signs of slowdown, it looks like we may have another sideways week. OI changes on VIX, SPX, and equities are all mixed, same with open interest put call ratios. None of the market sentiment indicators that I follow have had extreme readings, and there were just a few more downgrades than upgrades this week. The indicators seem to be balanced, giving me a neutral outlook for next week.

Weekly Market Review

Summary:

The Nasdaq Composite closed the week with a slim gain while the S&P 500 closed with a slim loss. The 4,100 level was an important area of support for the S&P 500 this week. Mega-cap stocks held up the broader market, led by Alphabet who rose 11.0% this week following its Developers Conference.

The Fed’s Senior Loan Office Opinion Survey on Bank Lending Practices (SLOOS) confirmed that lending standards have tightened and banks expect to tighten standards across all loan categories over the remainder of 2023. PacWest was a losing standout from bank stocks, falling 21.0% this week after announcing that its deposits fell 9.5% for week ending May 5th and cut its dividend to one penny.

The debt ceiling angst weighed on the market after Yellen warned of chaos if the situation is not resolved. President Biden met with congress leaders on Tuesday to discuss the ceiling, but did not calm market concerns. He was supposed to meet with them again on Friday, but that got postponed to next week.

Inflation readings showed continued month-over-month moderation in inflation which may at least spur the Fed to keep its policy rate on hold in June. Economic readings culminated on Friday with the consumer sentiment survey that showed an increase in inflation expectations.

Disney was a drag on sentiment after reporting a decline in Disney+ paid subscribers. Energy, materials, and industrials sectors showed some of the steepest declines for the week while communication services and consumer discretionary sectors were the lone outperformers boosted by their respective mega-cap components.

Monday:

The market was mixed and in a wait-and-see mode leading into the SLOOS. The loan officer report confirmed what most were already expecting following the regional banking issues that began two months ago. Lending standards have tightened and are expected to remain tight across all loan categories through 2023.

The day mostly closed flat and was supported by mega-cap gains while regional banks rolled over at the end of the day. $KRE was up 2.7% in the morning and closed with a 2% loss. Concerns of the debt ceiling was a distracting factor with statements from Yellen and planned meetings with President and Congress leaders.

Tuesday:

The market traded flat and slightly weak in from the CPI report expected on Wednesday. Ongoing debt ceiling concerns continued to mute most moves as Biden and Congressional leaders met at 4PM on Tuesday to discuss the ceiling.

The $DIA outperformed on the day largely due to a gain by Boeing on the news that they received 150 orders for 737 Max-10 plans from Ryanair, with an option for 150 more. Data for the day was only the NFIB Small Business Optimism Index for April with fell to 89, a 10 year low.

Wednesday:

Wednesday was a mixed day as the $DIA was mostly negative while $QQQ and $SPY outperformed with gains in the mega-cap space. Price action was muted till a later afternoon rebound took place, leaving the indices closing comfortably above their opens. $GOOG was a big driver of support as it rallied on the back of its Developer’s Conference presentation, which included updates on its AI efforts.

Initially, the market responded positively to the April Consumer Price Index report, but a closer look left investors feeling uncertain about the Fed’s policy path. Total CPI was up 4.9% YoY, down from 5%, which marks the first sub 5% reading in two years. Core CPI was up 5.5% YoY down from 5.6%. The report may sway the Fed to hold rates at their current level at their next meeting in June, on the other hand, a 5% reading is not going to convince the Fed to cut rates any time soon. Especially with the fact that the shelter increase of 0.4% MoM was the largest contributor to the increase in total CPI.

Other data included the MBA Mortgage Application Index which rose 6.3% with refinancing activity up 10% and purchase applications up 5%. The April Treasury budget was also released which showed a surplus of $176B compared to $308B last year. The report showed that individual income and corporate tax receipts were $465B which is 32% less than April of last year.

Thursday:

The indices closed mixed near their highs of the day on Thursday, yet the overall market was a bit weaker then the indices indicated. Growth concerns are creating a rush to safety buying interest in mega-caps which is driving a lot of the price action. The Vanguard Mega Cap Growth ETF rose 0.2% while the equal weighted S&P 500 ETF fell 0.5%.

As previously mentioned, news about $PACW’s deposit loss and dividend cut paired with $DIS’s 2% loss of subscribers added to growth concerns. This paired with the continued looming debt ceiling threat is creating a rough market environment.

Data for Thursday included the April Producer’s Price Index and the Weekly Initial Claims. PPI came in at 0.2% compared to -0.4% last month, showing continued moderation in inflation. Weekly claims was 264k, up from 242k last week. Continuing claims also showed some gains. Initial claims hit their highest level since last October, tracking in a direction that reflects an initial loosening in our tight labor market.

Friday:

Friday closed out the week on a more upbeat note, despite the negative price action for most of the day. The late afternoon bounce left the indices with only modest losses on a low volume day. Money flows reversed somewhat on Friday as $MGK fell 0.3% compared to the 0.2% loss in $RSP, showing a more mixed market breadth compared to Thursday.

Economic data brought us the April Import/Export prices which followed suit with the CPI and PPI reports with its own moderation in inflation pressures on a YoY basis. Import prices rose 0.4% compared to a 0.8% loss last month. Export prices were up 0.2% compared to a 0.6% decrease prior. Year over year figures were flat for imports and down for exports.

The May Consumer Sentiment report showed worse expectations with a reading of 57.7 compared to a 63.5 reading last month, and a 62.9 estimate. Consumer sentiment has weakened on concerns about the economic outlook which threatens discretionary spending and took out nearly half of the index’s gains since bouncing from its last all time low in June.

That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

Regards,

Dividend Dollars

    Categories
    Earnings Economics Market Recap Market Update

    Stock Market Recap & Outlook (5/5­­­­/23) – Apple Earnings Carry the Market & FOMC Rate Hike

    This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

    Dividend Dollars’ Outlook & Opinion

    Last week we ended with the statement “…overall performance for next week will ultimately be determined by the reaction to the FOMC decision and if continued earnings surprises can negate a downward move or enhance an upward one”. And that is precisely what we saw. Earnings, with the exception of $AAPL didn’t move the market much. The FOMC meeting sure did, and the jobs report that followed. We were in a solid downtrend for the week that only became negated last minute on account of $AAPL’s earnings and the strong jobs report.

    At this stage in the earnings season, a majority of companies have reported and the market has recorded its best performance relative to analyst expectations since Q4 2021. The number of positive EPS surprises and the size of the surprises are above their 10 year averages, despite a year-over-year decline in earnings for two quarters in a row.

    85% of the companies in the S&P 500 have reported. Of those, 79% have reported EPS that beat estimates by an average of 7%. Five of the eleven S&P sectors have reported year-over-year EPS growth, with consumer discretionary and industrials leading the pack. Materials and Utilities lag behind. Eight of the sectors are reporting year-over-year growth in revenues.

    Looking ahead, analysts still expect earnings growth for the second half of the year, meanwhile, Mike Wilson, the Chief Investment Office at Morgan Stanley, cautions investors to not be tricked by earnings beats as he has continued to warn of a coming slowdown in earnings and even potential earnings recession.

    we were hesitant to make any call aside from volatility on account of earnings being the main item that would control price action this week. Earnings did push the market higher by roughly 1%, with over a 2% swing from the mid-week low to the end-of-week high. I’d say the volatility call and its reasoning was correct.

    Though the market ended the week slightly down, SPX still managed to climb back above the key $4,100 level. Technicals week are not much changed from last week. However, a slightly less chaotic earnings and data calendar may help the market be a bit more fruitful this next week. There’s not many heavy hitters on the docket, the key will be the CPI report on Wednesday. Much like this last week, I expect moves on Monday and Tuesday to slight as we anticipate the CPI report. After which, the reception of the report may determine direction through the end of the week. With heavy earnings mostly out of the way and a week for investors to digest the effects of the most recent Fed rate hike, I think the market is poised to have a green week next week if CPI plays ball.

    Weekly Market Review

    Summary:

    The stock market closed the first week of May on an upbeat note, but Friday’s positive price action was not enough to recoup this week’s losses for most of the major indices. The S&P 500 approached its February high level (4,195) this week, at 4,186 on Monday, before slipping below the 4,050 level on Thursday. Market-moving events were full and plenty this week with earnings, FOMC rate hike, ECB rate hike, employment numbers, and a surprise announcement from Treasury Secretary Janet Yellen that measures to pay the nation’s bills could be exhausted as soon as June 1st. It was later announced that President Biden will meet with House Speaker McCarthy and other Congressional leaders on May 9 to discuss the debt ceiling.

    Debt ceiling worries, growth concerns, bank fallout, and overtightening were all overarching themes that drove the price action this week; however, Friday’s trade was dictated by the upbeat response to Apple’s earnings report, the April Employment Report, and a needed rebound in the regional bank stocks.

    We learned last weekend that First Republic Bank ($FRC) was seized by regulators. The FDIC facilitated a deal for JPMorgan Chase ($JPM) to acquire a majority of assets and assume deposits and certain liabilities of $FRC. Then on Thursday, PacWest ($PACW) confirmed it’s searching for a sale. Concerns continued to mount after Western Alliance ($WAL) is also considered strategic alternatives, including a possible sale, yet Western Alliance disputed the report, calling it “categorically false in all respects.” Both fell sharply this week, despite solid gains being made by the banking sector in general.

    Worries about central banks overtightening occurred on Wednesday after the FOMC voted to raise fed funds rate by 25 basis points to 5.00-5.25%, which was largely expected. The indices fell that day on the view that the Fed is not inclined to cut interest rates soon despite a contrary view that has been priced into the fed funds futures market. Some of Fed Chair Powell’s statements in his press conference included his acknowledgement that the process of getting inflation back down to 2% has a long way to go. He added that if the Fed’s inflation forecast is broadly right, it would not be appropriate to cut rates. A number of other central banks followed suit with their own 25 bps hikes as well.

    By Friday, some concerns about overtightening started to dissipate. The shift in sentiment was in response to the April Employment Report, which was good enough to encourage thoughts that a soft landing for the economy may still be possible despite the Fed’s aggressive rate hikes. Apple ($AAPL) also drove a lot of the market’s gains on Friday following its pleasing earnings report and capital return plan.

    Only 3 of the 11 S&P 500 sectors closed with gains this week unsurprisingly led by the information technology sector (+0.3%), benefiting from the move in Apple. The defensive-oriented health care (+0.04%) and utilities (+0.07%) sectors also outperformed. The energy sector (-5.8%) saw the biggest decline followed by financials (-2.5%) and communication services (-2.6%). 

    Monday:

    The stock market started May on a positive note as investors looked ahead to a busy week of potential market-moving events such as the Federal Open Market Committee (FOMC) decisio, followed by the European Central Bank meeting, Apple’s earnings report on Thursday, and the April Employment Report on Friday.

    The S&P 500 index rose to 4,186, breaching its February high closing level (4,179) on Monday, but couldn’t maintain its posture above that level by the close. Ultimately, the major indices closed just below flat, due to lagging mega-cap stocks such as Apple, Amazon.com, Alphabet, Tesla , and Microsoft.

    Weakness in bank stocks also weighed on the index performance, with the SPDR S&P Regional Banking ETF down 2.8% and the SPDR S&P Bank ETF down 2.2%. This followed news over the weekend that regulators seized First Republic Bank, and subsequently, JPMorgan Chase acquired a substantial majority of assets and assumed the deposits and certain liabilities of FRC through a deal facilitated by the Federal Deposit Insurance Corporation.

    The energy sector (-1.3%) was the worst performer, led by falling oil prices, another manifestation of growth concerns, and losses in Exxon, which was downgraded to Neutral from Buy at Goldman Sachs. Notably, it was the only sector to move more than 1.0% in any direction.

    On Monday’s economic data front, the April IHS Markit Manufacturing PMI was 50.2, down slightly from 50.4 in the prior month. Meanwhile, the March Construction Spending showed an increase of 0.3%, beating consensus of 0.1%, though new single-family construction remained weak. Finally, the April ISM Manufacturing Index was 47.1%, up from 46.3% in the prior month, reflecting a continued state of contraction in manufacturing activity, albeit with some notable strength in nonresidential spending to offset that weakness.

    Tuesday:

    Tuesday’s market saw a downturn driven by concerns of economic slowdown and the unexpected drop in bank stocks. These worries were compounded by Treasury Secretary Yellen’s warning about the government’s ability to meet its financial obligations by June. Despite opening below the 4,100 level, the S&P 500 was able to recover somewhat from its lowest point and closed with losses of 1.1%. Wednesday’s FOMC policy decision continues to hold attention; while a 25 basis point rate hike is expected, it is unclear how the directive and Chair Powell’s comments will be interpreted.

    Bank stocks were hit hard due to concerns about the economic slowdown affecting earnings. PacWest and Western Alliance suffered the most significant losses in the regional bank industry, while larger banks like JPMorgan Chase and Bank of America underperformed the broader market.

    Concerns about the economic slowdown were enhanced by weak manufacturing PMI readings for April in the eurozone, a decline in nondefense capital goods orders for March, and a JOLTs – Job Openings Report for March that showed a shrink in openings. Additionally, global growth concerns led to falling commodity prices notably in oil and copper.

    Tuesday’s economic data showed that factory orders rose by 0.9% in March, with nondefense aircraft and parts orders driving the increase. However, new orders were down 0.7% month-over-month for the 2nd straight month when excluding transportation. The March JOLTS – Job Openings stood at 9.590 million compared to 9.974 million from the prior month.

    Wednesday:

    The stock market closed with losses, with major indices ending near their lows for the day. Investors were cautious ahead of the Federal Open Market Committee policy decision and press conference by Fed Chair Powell.

    While the FOMC‘s decision to raise the target range for the fed funds rate by 25 basis points to 5.00-5.25% was largely expected, the market experienced some volatility as Fed Chair Powell spoke during his press conference. His comments, including acknowledging that the process of getting inflation back down to 2.0% would take time and that cutting rates would not be appropriate, were seen as less market-friendly than expected. The fed funds futures market, however, is pricing in three rate cuts by year-end, according to the CME FedWatch Tool.

    In other news, the ADP Employment Change for April came in at 296,000, well above the consensus of 142,000 and the March figure of 142,000. The final IHS Markit Services PMI for April fell slightly to 53.6 from 53.7, while the ISM Non-Manufacturing Index increased to 51.9% from 51.2% in March, indicating continued growth in the services sector at a somewhat faster pace than the prior month. Overall, the majority of respondents to the ISM survey were positive about business conditions, although some expressed concerns about inflation and an economic slowdown.

    Thursday:

    The stock market had a down day following the FOMC rate hike, with the major indices closing off their lows. Concerns about central banks overtightening and a potential economic slowdown contributed to the weakness, as several central banks followed the FOMC’s lead and raised their key lending rates.

    The regional bank industry also faced ongoing issues, with PacWest considering strategic options and Western Alliance disputing reports of a possible sale, as previously mentioned. The SPDR S&P Regional Bank ETF and the SPDR S&P Bank ETF both saw significant declines.

    9 of the 11 S&P 500 sectors closed in the red, with the financials and communication services sectors showing the largest declines. Despite the rough day, there was a successful IPO with Johnson & Johnson’s consumer health spinoff Kenvue going public.

    Weekly initial jobless claims continued to run well below levels seen during prior recessions. March trade balance had a deficit of -$64.2 billion exhibiting weak import activity and a cooling of the US economy. Q1 productivity came in at -2.7%, much lower than the expected -0.1%. The weak productivity is feeding into the elevated labor costs were contributing to elevated inflation and the Fed’s thinking that it will have to keep rates higher for longer.

    Friday:

    The stock market had a positive close for the first week of May, with major indices showing strength throughout the day. The S&P 500 almost reached the 4,150 level before pulling back slightly at the close. Apple’s pleasing earnings report and capital return plan contributed to a nearly 5% gain in its stock price, which helped boost the technology sector. Regional bank stocks also rebounded, with PacWest and Western Alliance experiencing outsized gains due to short-covering activity. The financials, energy, and technology sectors were the top performers for the day, with the Russell 2000 also outperforming thanks to strength from regional bank stocks and energy shares.

    Market participants were also digesting the April employment report, which showed that nonfarm payrolls grew by 253,000 (compared to a consensus of 180,000) and the unemployment rate fell to 3.4% (compared to a consensus of 3.6%). Average hourly earnings also increased by 0.5%, beating the 0.3% expectation. These results suggest that the Fed may not need to cut rates soon, but at the same time, the continued strength in the labor market after nine rate hikes (the 10th rate hike came after the data for April were collected) provides hope that a soft landing for the economy is still possible.

    That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

    And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

    Regards,

    Dividend Dollars

    Categories
    Earnings Economics Market Recap Market Update Stock Market

    Stock Market Recap & Outlook (4/28/23) – Earnings Lead the Market While Economics Are Mixed

    This weekly market recap is brought to you by Koyfin, a powerful analytical tool that I am proud to partner with. Their platform is entirely customizable for whatever data you want to look at including stocks, ETFs, mutual funds, currencies, economic data releases (one of my personal favorites used often for these posts), crypto, and even transcripts of company events! Click the link above to get a special offer only for Dividend Dollar readers or go give my product review a read if you’re interested!

    Dividend Dollars’ Outlook & Opinion

    Last week we were hesitant to make any call aside from volatility on account of earnings being the main item that would control price action this week. Earnings did push the market higher by roughly 1%, with over a 2% swing from the mid-week low to the end-of-week high. I’d say the volatility call and its reasoning was correct.

    This week was a volatile fight higher as surprisingly solid earnings and a strong labor market continues to out-bull the bears of declining sentiment and recession fears. We had a decent chunk of economic releases, and most surpassed expectations, helping the grind higher.

    The first key to the week was the that Q1 GDP advance estimate came in at +1.1%, compared to +2.6% in 22Q4 and +3.2% 22Q3. Q1 GDP was below the market consensus of near 2% but was on point for the Atlanta Fed GDPNow forecast. Inflation continues to be a weight on non-inflation GDP growth which was +5.1% in Q1. That would be a stellar reading in a normal inflation environment, but with inflation at 4%, we end up with just 1.1% real GDP.

    Next was Q1 earnings reports. This earnings season is about half way through, with just over 250 of the S&P 500 companies having completed their reports. So far, 94% of the reporters have beat the EPS estimates, 69% have beat their revenue estimates. From an aggregate basis, the Q1 earnings are down 1.7% year-over-year compared to a -6.6% estimate at the end of Q1. Q1 revenues are up 4% YoY compared to 1.9% expected growth. In comparison to what was expected, this earnings season has been impressive to say the least.

    When thinking of the potential headwinds that could slow the market, one could put together a pretty solid list. We have consistent inflation concerns, economists’ warnings of a recession, a debt ceiling debate in Congress, and another potential FOMC rate hike next week. Strong earnings and strong labor markets are enough to keep us bullish, apparently.

    This week we saw $SPX briefly dip below the stubborn technical level at 4,100 again, but it has closed comfortable above it this week. Equities in general are doing terrifically compared to what most forecasters expected YTD. The long-term downtrend is far away and $SPX is well above all significant SMAs. At this point, falling back down to bear market lows would require a very scary decline in the market. Yet, on the other hand, a little bit more of a rally would be enough to call a new bull market at just 2.8% higher than current levels.

    Going into next week, it is highly likely that we see another 25-basis point rate increase. Then, the second half of the week will be filled with employment data. As earnings continue, there’s no doubt in my mind we will continue to see some strong price action. With that said, the job market has not deteriorated much yet combined with the fact that the second half of earnings could easily be as strong as the first half, next week looks poised for gains and volatility. However, overall performance for next week will ultimately be determined by the reaction to the FOMC decision and if continued earnings surprises can negate a downward move or enhance an upward one.

    Weekly Market Review

    Summary:

    All major indices closed the last week of April with gains except for the Russell 2000. Investors received tons of earnings news and economic data this week, which all reflected mixed activity. Those mixed results fueled a midweek sell-off before a strong rally effort during the last 2 days. 

    Earnings results from many mega cap stocks like $MSFT, $GOOG, $AMZN, and $META pulled a lot of focus this week. Unsurprisingly, their reports received mixed reactions from investors.

    $GOOG and $AMZN declined on their earnings reports, with the latter warning about slowing cloud services growth, while $MSFT and $META made gains. Nonetheless, mega cap stocks moved the indices higher. The Vanguard Mega Cap Growth ETF ($MGK) rose 1.9% on the week. 

    On the flip side, some earnings reports contributed to economic growth concerns. Most notably, $UPS, $DOW, $TXN, and $NSC all disappointed with their earnings/guidance.

    $FRC fallout continued after its disappointing earnings, which featured a 40% decline in deposits and renewed lingering worries about tighter lending standards and deposit costs.

    Economic data this week showed mild weakness, yet there was no clear signal that the economy is deteriorating rapidly. The advance Q1 GDP report didn’t look great on the surface with real GDP increasing at an annualized rate of 1.1% after increasing 2.6% in Q4. However, personal consumption expenditure growth rose 3.7% from 1.0% in the Q4. 

    The March Durable Orders report enhanced slowdown concerns due to a 0.4% drop in nondefense capital goods orders in March, a gauge for business spending. Separately, the labor market remains strong as seen in the initial jobless claims staying far away from levels that have been seen in past recession.

    The S&P 500 communication services sector (+3.8%) was the top gainer this week, followed distantly by information technology (+2.1%) and real estate (+1.5%). The utilities (-0.9%) and industrials (-0.6%) had the largest losses.

    Monday:

    Stocks had a lackluster showing on Monday. We were in wait-and-see mode ahead of big  earnings news and economic dat. The main indices logged only modest gains or losses, ultimately settling the session in mixed fashion.

    The hesitancy on Monday came ahead of a slate of important economic data this week, including the Fed’s preferred inflation gauge Core PCE on Friday along with big tech earnings throughout.

    Without a lot of market-moving catalysts, mega cap stocks drove a lot of the index moves. The Vanguard Mega Cap Growth ETF ($MGK) was down 0.2% while the Invesco S&P 500 Equal Weight ETF ($RSP) rose 0.2% and the market-cap weighted S&P 500 was up 0.1%.

    Dow component Coca-Cola ($KO) initially moved higher as investors digested a better-than-expected Q1 earnings report, but KO gave back those early gains to close with a slim loss.

    Tuesday:

    Stocks were in a solid range before finally giving up on Tuesday. The major indices all registered decent losses despite roughly 75% of companies reporting beating earnings expectations.

    Growth concerns drove Tuesday’s price action following First Republic Bank’s (FRC) disappointing earnings results as previously mentioned. The report renewed lingering worries about banks facing higher deposit costs and tighter standards. Sentiment around FRC deteriorated further following news that a team of wealth advisors managing $13 billion in assets may leave the bank, and other news they are considering an asset sale. The stock was halted and  faced ongoing selling pressure after it reopened.

    UPS’s earnings report contributed to slowdown worries after the company lowered FY23 guidance due to macroeconomic conditions and “changes in consumer behavior.”

    This all offset any strength from other companies that reported earnings and made gains like $VZ, $PEP, and $KMB.

    Economic news for Tuesday included the national home price index, US home sales, and the consumer confidence index report.

    The FHFA Housing Price Index rose 0.5% in February compared to a revised 0.1% in January.

    The S&P Case-Shiller Home Price Index fell to 0.4% in February versus a flat consensus. Last month’s reading was at 2.6%.

    New home sales rose 9.6% MoM in March to a seasonally adjusted annual rate of 683,000 units, well above expectations. On a year-over-year basis, new home sales were down 3.4%. The takeaway from the report is that new home sales activity is being helped by the tight supply of existing homes for sale, although affordability issues with higher prices and higher mortgage rates are still dampening stronger new home sales activity. Homebuilder stocks reacted positively to the news.

    The Conference Board’s Consumer Confidence Index for April fell to 101.3, well below the expected 104. One year ago, the index was at 108.6. The takeaway from the report is that consumers were more pessimistic about the outlook of business conditions and the labor market, which translated into another sub-80.0 reading for the Expectations Index. This was the 13th sub-80 reading in the last 14 readings. A level below 80.0 is a level associated with a recession within the next year.

    Wednesday:

    The market closed mixed, yet skewed negative under the surface. Price action was especially disappointing when considering the 7.2% gain in $MSFT after earnings. The market moved higher early on thanks in large part to support from the mega cap space, but ultimately closed near their lows of the day.

    Even $GOOG, which had been up as much as 2.3% after reporting better than expected/feared quarterly results, closed the session with a slim loss.

    The negative bias was stemming from growth concerns on bank fallouts, debt ceiling matters, and the Fed’s policy path.

    Relatively disappointing guidance from $TXN and $NSC and the 0.4% decline in nondefense capital goods orders in March, a gauge for business spending, piled onto the slowdown concerns.

    Separately, the U.K.’s CMA said it will block Microsoft’s acquisition of Activision Blizzard ($ATVI), which weighed heavily on the latter stock. I wrote a separate article specifically on that news here.

    Economic data for Wednesday included the MBA mortgage application and the durable goods orders report.

    Weekly MBA Mortgage Applications Index 3.7% compared to -8.8% last week. March Durable Orders 3.2% well above consensus of 0.7%. The key takeaway from the report, though, is that non-defense capital goods orders excluding aircraft, a gauge for business spending, declined 0.4% in March following a 0.7% decline in February.

    Thursday:

    The stock market had a decidedly strong showing on Thursday. The major indices regained all of their losses from Wednesday and then some. The broader market was boosted by a huge gain in $META after its earnings report. As a result, other mega cap stocks logged outsized gains, driving a 2.6% gain in the Vanguard Mega Cap Growth ETF ($MGK).

    The positive price action was improved by beneficial economic outlooks. Favorable earnings and/or guidance from the industrials sector and other companies, along with the healthy 3.4% increase in real final sales in Q1 and initial jobless claims that continue to run well below recessionary levels, helped to calm concerns about the economy being at imminent risk of a hard landing.

    Earnings-driven gains in $META and $CMCSA propelled the communication services sector to first place on the leaderboard by a big margin. The consumer discretionary (+2.8%), real estate (+2.4%), and information technology (+2.2%) sectors were also among the outperformers.

    Economic data for Thursday included the advance Q1 GDP report, initial jobless claims, and the pending home sales report.

    The Advance Q1 GDP report wasn’t as underwhelming as it appeared to be at first read. Real GDP increased at an annualized rate of 1.1% compared to 2% expectations and a 2.6% Q4. The GDP Price Deflator increased to 4%. The key takeaway from the report is that the deceleration in growth wasn’t because of weak consumer spending. Actually, personal consumption spend growth picked up in Q1 to 3.7% with spending on goods up 6.5% and spending on services up 2.3%. The hit to growth came from the change in private inventories.

    Initial jobless claims for the week fell by 16,000 to 230,000 while continuing jobless claims for the week ending April decreased by 3,000 to 1.858 million. The key takeaway from the report is that initial jobless claims remain a long way from the levels that have been seen in past recessions with an average above 375,000.

    Pending home sales dropped 5.2% in March (Briefing.com consensus 1.0%) following a 0.8% increase in February.

    Friday:

    The market built on Thursday’s gains, closing near their highs of the session, despite a sizable decline in $AMZN after the company warned slowing cloud services growth after its better than expected Q1 report.

    Nice gains from some blue chip names like $XOM, $CL, and $MDLZ supported the broader market while sharp earnings-related losses in $PINS and $SNAP kept the Nasdaq trailing its peers.

    Economic data for Friday included the Q1 employment cost index, the PCE price index, the personal income and spending report, and the consumer sentiment index.

    The Q1 Employment Cost Index increased 1.2% for Q1 2023. Wages and salaries, which account for about 70% of compensation costs, increased 1.2% following a 1.2% increase from last month. The key takeaway from the report is that labor costs didn’t show any signs of deceleration. Compensation costs for civilian workers increased 4.8% YoY while benefit costs increased 4.5%.

    There weren’t a lot of surprises in the March Personal income and Spending Report. Personal income increased 0.3% MoM and personal spending was flat.

    The PCE Price Index was up 0.1% and the core PCE Price Index, which excludes food and energy, was up 0.3%. The key takeaway from the report is that the core PCE Price Index, the Fed’s preferred inflation gauge, held fairly steady at persistently high levels, checking in at 4.6% YoY. The stickiness of that component should keep the Fed sticking to its rate-hike ways.

    The final University of Michigan Consumer Sentiment Index for April read at 63.5, in-line with the preliminary estimate. The final reading for March was 62.0. A year ago, the index stood at 65.2. The key takeaway from the report is that consumer sentiment remains pinned at lower levels, stemming in part from inflation pressures that are dragging on attitudes about personal finances due to higher expenses.

    That’s it for my recap! If you would like to see how I am building my dividend portfolio using my predictions/strategy written here, you can read about my buys in my weekly portfolio update on this link.

    And if you like updates like this, follow my Twitter or my CommonStock page where I post updates on the economic data throughout the week.

    Regards,

    Dividend Dollars