Tag: Earnings

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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 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

Categories
Economics Market Recap Market Update Stock Market

Stock Market Recap & Outlook (2/10/23) – Continued Earnings and Mixed Week

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!

Weekly Market Review

The rally lost some steam this week due a sense that we were due for a drawdown or some consolidation on the back of rate-hike and valuation concerns. After last Friday’s January employment report surprise, there wasn’t a great deal of conviction on the sell side or the buy side this week. Ultimately, the indices all registered losses, which had the S&P 500 settle Friday’s session below the 4,100 level.

Monday, the market was slow to open as we were hesitant of Fed Chair Powell’s “Conversation with David Rubenstein” at the Economic Club of Washington, D.C. on Tuesday. Heightened geopolitical tension after the U.S. shot down China’s suspected spy balloon off the South Carolina coast last Saturday may have also contributed to the slow start.

The indices rebounded from their opening lows but could never seem to hold onto any momentum. We spent much of Monday moving sideways in a tight trading range. The Dow Jones Industrial Average briefly scooted above its range in late afternoon before fading again into negative territory.

Tuesday, unsurprisingly started on a mixed note. The main indices oscillated around their flat lines in the first half of the day as investors awaited the aforementioned Powell talk.

Mr. Powell didn’t say anything too surprising, but the market responded with some volatile price action nonetheless. The main indices initially shot higher off of Powell’s calm response to the surprise employment report last friday.

That initial jump gave way to selling pressure after Mr. Powell said that the Fed will react to the incoming data and will do more rate hikes if the data suggest that is necessary. A response that we have been hearing for some time. He also said that the Fed has a significant road ahead to get inflation down to 2% and that he thinks it won’t be a quick move to that goal

The following reversal in the indices saw the S&P 500 breach support at the 4,100 level, where buyers stepped in for a technical rebound, supported by short-covering activity. The indices closed near their best levels on Tuesday.

Also helping late Tuesday was a rally in Microsoft ($MSFT) and other AI-related stocks after Microsoft announced its new AI-powered Microsoft Bing search engine and Edge browser.

On Tuesday, we also got the December Trade Balance report. It came in at -$67.4 bln compared to a consensus of -%68.5 bln. The prior reading was revised to -$61.0 bln from -$61.5 bln.

The key takeaway from the report is that it reflected a slowdown in global trade, evidenced by a $2.1 billion decline in the 3-month moving average for the goods and services deficit to $68.6 billion that resulted from a $2.6 billion decrease in average exports and a $4.7 billion decrease in average imports.

We also got the Fed’s Consumer Credit report which showed that total outstanding credit increased by $11.6 bln in November following an upwardly revised $33.1 bln in November.

The key takeaway from the report is that total consumer credit expansion slowed in December, with higher interest rates crimping loan demand. Nonrevolving credit saw its smallest expansion ($4.3 billion) since August 2020.

Then, stocks spent Wednesday drawing down largely due to concerns that the market got overextended and was due for some consolidation. Selling efforts were broad based but generally modest overall.

A notable exception was Alphabet ($GOOG), which tanked 7.4%. Shares were falling on concerns the company is behind in the AI space — a concern that was magnified by news that its Bard AI bot gave a wrong answer at the company’s launch event.

Weakness may have also been exacerbated by Biden’s State of the Union address where he called for a billionaire minimum tax, a quadrupling of the tax on corporate stock buybacks, and raising the debt limit without conditions. He also made a case for more antitrust regulation of technology companies.

With a divided Congress, the market wasn’t overly concerned about new tax policies being passed, but it was interested in what happens with the debt limit discussions and the possibility more regulations.

We also received data on the Weekly MBA Mortgage Applications Index (7.4%; Prior -9.0%) and the December Wholesale Inventories 0.1%. Prior was revised to 0.9% from 1.0%.

The stock market started Thursday higher, yet the bulls were soon corralled and the major indices spent most of the day retracing their opening steps in what became a trend-down day. The selling that took place was broad based and left the S&P 500 below 4,100 at the closing bell.

A favorable response to Walt Disney’s ($DIS) better-than-expected fiscal Q1 earnings report and restructuring announcement, falling Treasury yields, and another weekly initial jobless claims report that was supportive of the soft landing scenario provided the fuel for the opening bid.

Thursday’s open continued ideas of potential overvaluation. Treasury yields then started to move up and the market slipped consistently on the fostered selling.

Friday ended the week on a stable note ahead of key data releases next week, including the Consumer Price Index, Retail Sales, Industrial Production, Housing Starts, and Producer Price Index reports all from January.

There was not much conviction from buyers or sellers, which left the S&P 500 and Dow with small gains while the Nasdaq logged a modest loss. Mega cap stocks seemed to lag, keeping pressure on index level performance. Tesla ($TSLA) was a losing standout among the mega cap stocks amid investors’ concerns that a potential Department of Transportation order could force Tesla to make its charging stations available to other electric vehicles.

Oil prices climbed up some lost ground on Friday, which also pressured the equity market, in response to Russia saying it is going to cut production by 500,000 barrels per day in March in response to international sanctions.

Friday saw the February Consumer Sentiment report come in with a reading of 66.4 (Prior 64.9).

The key takeaway from the report is the understanding that the year-ahead inflation expectation increased from January, raising concerns about consumers’ future discretionary spending capacity.

Only 1 of the 11 S&P 500 sectors made gains this week – energy (+4.9%) — while the communication services sector (-5.6%) registered the largest decline by a wide margin.

The 2-yr Treasury note yield rose 22 basis points this week to 4.51% and the 10-yr note yield rose 21 basis points to 3.74%.

Those moves in the Treasury market reflect concerns that the recent strength in employment reports will give the Fed more room to raise rates and to keep rates higher for longer. This sentiment was also evident in the fed funds futures market, which is now pricing in a 74% probability of a third, 25-basis point rate increase at the May FOMC meeting, according to the CME FedWatch Tool, versus only a 30% probability last Thursday (i.e., the day before the employment report).

Dividend Dollars’ Outlook & Opinion

That’s it for the recap. Now for my opinion!

This week was a consolidation week, with the main indices recording only modest losses week over week. As we mentioned last week, the market got a bit too extended a little too fast, so we anticipated a consolidating week or minor moves. That is exactly what we got!

Earnings continued this week and results continue to follow the “better than feared” theme. We are about 2/3 of the way through earnings season after this week. Earnings beats stayed the same this week at 70% and revenue beats moved up to 55% from 52%. Earnings results still don’t appear to be overly bullish, and with near-term negative growth expectations it is hard to justify the level that the S&P 500 is trading at.  These figures are tracked using MarketBeat.

In recent weeks, we broke above the long term resistance (red shaded channel) and also the next level of resistance at the 4,100 level (top green line). As we called out last week, that 4,100 level did turn into support on Monday and Wednesday, but was shortly broken thereafter.

With the S&P now back under the 4,100 level (an area that was resistance back in September and December) and with earnings season closer to ending, it is hard for me to think of a reason for S&P to go higher. This is especially true if we consider the S&P’s forward P/E paired with the fact that the “E” side of things doesn’t look to be growing in the near term.

Because of this, I wouldn’t be surprised if we see some range movement between the 4,100 level and the 3,800 level (bottom green line) that created a nice base from mid-December to early January. The next FOMC meeting and coming inflationary data are the only items I can foresee being important enough to move the market out of that range, up or down.

VIX saw small gains this week and appears to be in tighter range so far this year compared to last year. The VIX structure has significantly flattened over the past few months. This could be related to a relatively more comfortable outlook regarding where the Fed stands on inflation. Other than this observation in VIX, the other items I write about sometimes (such as OI change and put to call ratios among VIX and the ETFs) did not grab my attention much. Some are leaning more bearish than last week, but not significantly so.

Overall, 2023 kicked off with a bang for bulls, however it appears that traders need a break. Macro items need some tie to play out. I anticipate more consolidations in the near term.

Fed speak this week felt moderately hawkish and bond yields are rising, giving investors lots to chew over. Next week, volatility could be present with the CPI reading on Tuesday. If it comes in significantly lower than the consensus, bulls could be off to the races again, otherwise the technical suggest flat or slightly bearish week 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.

Regards,

Dividend Dollars