Tag: Economic Outlook

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Stock Market Recap & Outlook (9/1/23) – Lackluster Data is Good for Rates

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 neutral to moderately bullish was a W as all the major indices are sitting at +1.4% or higher for the week. The moves higher this week we’re largely due to some worse than expected economic data releases. Though it sounds counterintuitive, the miss on Q2 GDP and JOLTS/ADP employment data had the market rethink their expectations for the Fed and Treasury yields, which caused this week’s bullishness.

Nonfarm payrolls had a negative revision to the past two months, average hourly earnings rose less than the estimate, and the unemployment rate rose higher than the estimate. The Fed has been closely watching the labor market, and this minor loss of strength shifted Fed rate forecasts more in favor of rate pauses rather than rate hikes. See the charts below from the CME FedWatch tool.

The odds of a pause in the September meeting increased from 80% to 93% this week, this would keep the rate at 525-550. The odds of keeping the 525-550 rate in the November meeting increased from 44% to 62%. The odds of keeping the 525-550 rate in the December meeting increased from 44% to 60%. These all suggest a higher likelihood of a dovish Fed for the rest of the year. Subsequently, treasury yields slid lower on this sentiment, helping stocks to edge higher.

From a technical standpoint, the S&P 500 broke above the technical 4,450 level we have been watching. It ran higher with strength on Tuesday as the JOLTS data caused a lower reaction to yields, reclaiming the 50 day SMA in the process. The market pushed higher for the rest of the week, with less tenacity, and closed right under the 0.785 fib level. That level and July’s high of 4,600 will be the next areas of resistance, while the 50-day SMA and 4,450 are now our support levels under here.

A push higher would be greatly helped by a continued move down in the 10-year yield. Yields have pulled back a bit since the high hit on August 22nd, the bad news is that the rising channel is still intact. If the rate bounces higher off of this level, selling pressure will make it difficult for equities to push higher.

Overall, this was a good week. Pending home sales, initial jobless claims, personal spending, PMI, ISM, and construction spending all beat their estimates. PCE and core PCE were in line with theirs. Consumer confidence, JOLTS, HPI, ADP employment change, Q2 GDP, and unemployment all were worse than their estimates.

Next week brings us factory orders on Tuesday, the Fed’s Beige book, ISM, MBA mortgage, and trade balance data on Wednesday, claims and productivity on Thursday, and consumer credit on Friday. None of these will have too much influence on the market, but focus should be on the Beige Book and employment data. With bonds looking likely to be the driver in the market next week, I’m keeping my outlook of Neutral to Moderately Bullish for the week ahead.

Weekly Market Review

Monday:

Stocks started the last week of August on an upbeat note. The major indices closed near their best levels of the day on extremely light NYSE volume. The positive bias was partially fueled by carryover upside momentum from Friday’s rebound effort.

The indices were choppy as a result of fickle price action in the mega cap stocks, but they never slipped into negative territory due to broad buying. NVIDIA ($NVDA) had been down as much as 2.5% at its low of the day, but closed with a 1.8% gain.

The Vanguard Mega Cap Growth ETF ($MGK) rose 0.7%, the Invesco S&P 500 Equal Weight ETF ($RSP) rose 0.8%, and the market-cap weighted S&P 500 rose 0.6%.

3M ($MMM) was a standout winner following reports that the company is nearing a $5.5 billion settlement in the military earplugs case.

There was no economic data of note for Monday.

Tuesday:

It was another strong day for stocks on light volume. A drop in rates provided the positive catalyst for stocks. The S&P 500 climbed above its 50-day moving average after the open and closed just a whisker shy of the 4,500 level. All major indices closed near their highs of the day.

Treasury yields dropped following the release of the July JOLTS Report and August Consumer Confidence Index. Both of those reports were weaker than expected, which is a good thing in the market’s eyes as it relates to Fed policy.

Mega caps and other growth stocks led the upside charge, reacting positively to the drop in market rates. The Vanguard Mega Cap Growth ETF ($MGK) jumped 2.0% and the Russell 3000 Growth Index rose 1.9%.

A gain in Best Buy ($BBY) following its earnings results and outlook provided an additional boost to the consumer discretionary sector.

Economic data for the day included the June S&P Case-Shiller Home Price Index, the August Consumer Confidence Report, and the July JOLTS job report.

The June Home Price Index composite moved lower at -1.2% YoY, beating the consensus of 0.9%. Both the 10-City & 20-City Composite increased 0.9% MoM. Among the 20 cities, Chicago, Cleveland, and New York posted the highest YoY gains at 4.2%, 4.1%, and 3.4%, while San Francisco and Seattle posted the worst at -9.7% and -8.8%.

The Conference Board Consumer Confidence Index fell to 106.1 in August, down from 114.0 in July, wiping the gains from June and July. The decline is due to the Present Situation Index falling from 153.0 to 144.8 and the Expectations Index falling from 88.0 to 80.2. Consumers appear to be concerned about rising prices, for groceries and gasoline in particular. Expectations of 80 and lower have historically signaled a recession within the next year. The key takeaway from the report is that receding optimism about employment conditions negatively affected consumers’ view of the present situation and outlook.

The JOLTS jobs report showed lower openings in July, down 338,000 to 8.8 million, with decreases coming primarily from professional/business services, health care/social assistance, & state/federal government. Increases came from information and transportation, warehousing, & utilities.

Wednesday:

The market hit its 4th consecutive winning session in another lightly traded day. Upside moves were less prominent compared to recent sessions. The S&P 500, which closed above the 4,500 level, and the Nasdaq Composite finished near their highs of the day thanks to support from the mega cap space.

An initial drop in market rates following the weaker than expected economic data provided added support early on. Treasury yields climbed off their intraday lows, though.

Relative strength from the mega cap space was the biggest driver of index gains. The Vanguard Mega Cap Growth ETF ($MGK) rose 0.7% while the Invesco S&P 500 Equal Weight ETF ($RSP) rose 0.3%. The market-cap weighted S&P 500 closed up 0.4%.

Economic data for Wednesday included the MBA mortgage applications, the July Pending Home Sales report, the Q2 GDP second estimate, the ADP employment report, and the trade in goods report.

Weekly MBA Mortgage Applications grew 2.3%. The increase was due to the Refinance  Index increasing 3% and the Purchase Index increasing 2%. The average rate for a 30-year fixed-rate conforming mortgage moved to 7.23%.

July Pending Home Sales grew 0.9%, beating -1.3% expectations and 0.4% prior reading. This is the 2nd consecutive monthly increase. The Northeast and Midwest posted monthly losses, while sales in the South and West grew. All 4 regions saw YoY declines in transactions.

August ADP Employment Change showed that job creation slowed, falling from 371,000 in July to 177,000 August & missing expectations of 200,000. The report showed that pay growth slowed for workers who changed jobs and those who stayed in their current positions. The ADP press release stated that “this month’s numbers are consistent with the pace of job creation before the pandemic.”

The advanced international trade in goods release showed that the trade deficit increased 2.6% to $91.2 billion in July. The increase of imports outpaced the increase of exports. Regarding inventories, the advance wholesale inventories were down 0.1% in July and the June percentage change was revised down from -0.5% to -0.7%. Advance retail inventories were up 0.3% in July and the June percentage change was revised down from 0.7% to 0.5%.

The Q2 GDP estimate was revised lower from 2.4% to 2.1%, whereas economists expected it to remain unchanged. The revision was due to downgrades in inventory investment & business spending on equipment & intellectual property products. The pace of growth remains above the Feds non-inflationary growth rate of approximately 1.8%. Despite that, the report fits the soft landing scenario; also, there were downward revisions to the inflation readings, which is something that will continue to drive the market’s belief that the Fed can refrain from another rate hike.

Thursday:

The market’s winning streak was broken on Thursday. The market had moved higher before upside momentum slowly dissipated. The S&P 500 and Dow Jones Industrial Average both closed with a loss near their worst levels of the day.

In general, big moves were reserved for individual stocks with catalysts. Retailers Dollar General ($DG) and Five Below ($FIVE) sank after reporting quarterly results that featured below-consensus guidance. CrowdStrike ($CRWD) and Salesforce ($CRM), meanwhile, registered sizable gains after their earnings reports.

Economic data for the day included the weekly initial claims report and the July PCE reading.

Initial jobless claims fell by 4K to 228K for the week ending August 26. The 4-week moving average increased slightly to 237,500. Continuing claims increased 28,000 to 1,725,000 from the previous week. The 4-week moving average also increased slightly to 1,704,250. The key here is that initial claims, a leading indicator, continues to represent a tight labor market which goes hand-in-hand with an economy that is clearly not in a hard landing scenario.

The Personal Consumption Expenditures price index (PCE) increased 0.2% in July. Year-over-year, the index increased from 3.0% in June to 3.3% in July. Stripping out food and energy, Core PCE ticked up 0.1 percentage points to 4.2% YoY, while MoM change was 0.2%. Personal income increased 0.2%, down from 0.3% the prior month, and personal spending climbed to 0.8%, up from 0.6% the prior month. All of these readings were basically in line with expectations. The key here is uptick in YoY inflation readings, though it wasn’t horrendous by any means, it should catch the Fed’s eye as a basis for not cutting rates any time soon.

Friday:

Stocks closed out the 1st day of September on a mixed note. The 3 main indices closed with modest gains or losses while the Russell 2000 (+1.1%) outperformed. The S&P 500 kept a position above 4,500, reaching 4,501 at its low.

A jump in market rates and a sharp increase in oil prices acted as headwinds for the stock market. The 2-yr note yield rose 2 basis points, and fell 17 basis points this week, to 4.88%. The 10-yr note yield rose 8 basis points today, and fell 7 this week, to 4.17%.

Mega caps and growth stocks were relatively soft, reacting to the bump in rates and cooling off from a stronger showing earlier in the week. The Vanguard Mega Cap Growth closed flat while the Invesco S&P 500 Equal Weight ETF ($RSP) logged a 0.4% gain and the market-cap weighted S&P 500 rose 0.2%. The Russell 3000 Value Index rose 0.6% versus a 0.1% gain in the Russell 3000 Growth Index.

Economic data for the day included the Employment Situation report, the S&P Global US Manufacturing PMI, and the ISM Manufacturing Index.

August Nonfarm Payrolls came in at 187K, higher than the expectations and prior readings. The prior reading was revised down to 157k from 187k, a large move down. Private payrolls came in at 179k. Average hourly earnings rose 0.2%, below the expected 0.3% and prior 0.4%. The unemployment rate rose from 3.5% to 3.8%. The key takeaway here is that the moderation in hourly earnings and uptick in unemployment are both good signs that Fed won’t be raising rates again.

The August S&P Global US Manufacturing PMI came in at 47.9, just 0.9 higher than July. Construction Spending was 0.7%, beating 0.6% expectations. The key takeaway from the report is that residential spending continues to be powered by new single-family construction to meet demand that cannot be satisfied through the existing home market.

August ISM Manufacturing Index moved up to 47.6%, beating the expected 46.7% and prior 46.4%. The key takeaway from the report is that manufacturing demand remains soft (below a reading of 50 is considered contractionary, yet conditions in the manufacturing sector appear to be slowly stabilizing.

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 (8/25/23) – 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

Categories
Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (8/18/23) – Summertime Selling

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 didn’t call a bullish or bearish outlook for this week. We said technical were poised for a bounce, but yields were raising and could cause some selling. We pointed to a +/-1% move with steady direction all week.

This call out was sort of right. Yields continued to rise higher, and stocks trended down for the whole week. Earnings season is nearly over, with 94% of S&P 500 companies having reported. 80% have beaten EPS expectations and 58% have beaten revenue expectations. Economic data this week had better than expected readings for retail, industrial production, employment, and trade while housing and inventories were worse than expected. None of the data was too amazing or too awful. Troubles in China and the release of the Fed minutes, in my opinion, were the largest catalysts this week.

From a technical standpoint, the $SPX support we were expecting at the 4,450 level (a level we have talked about for weeks now) did not last long. The confluence of the support there and the 50-day moving average failed in spectacular fashion on Tuesday. It may now be a stubborn resistance level for when the market moves higher, so let’s bookmark that thought. For now, there’s not much historical volume to go off of at these levels, besides the activity in June, the last time the market was in this area was over a year ago. I think the 0.618 Fibonacci level at 4,310 is the next target, which also aligns with the 100-day moving average, another confluence like last week! That level is also right above the old bull market threshold (4,292) and may provide some solid support.

For yields, the 2-, 5-, and 10-year Treasury yields are all at high levels not seen since 2007. Breaking above these levels would be a hugely significant indicator for the state of the economy. However, as we have seen time and time again in the data, GDP and the labor market are strong. Fed funds futures are expecting a less than 60% chance of a hike throughout the rest of the year. There seems to be a disconnect here, causing me to have the opinion that rates should be falling soon. If that happens, the bounce in $SPX may follow.

Wrapping up now, next week is lighter on the economic front with home data, job data, and sentiment data. Market sentiment indicators are mixed this week with $SPX open interest change, $VIX open interest put call ratios, and $VIX levels in general looking more bearish while ETF open interest change, CBOE and OCC equity volume put call ratios, and $VIX IV gap looking more bullish. There is a wide dispersion in indictors this week. A correction seems to finally hit stocks that got too far ahead of themselves, and the momentum downward seems strong, however a key support level is near. Bullishness for next week is not unreasonable, however the overall state of the market seems to be bearish, which is the direction that I will be leaning. Looking for a moderately bearish week next week and lots of chop around the key support area.

Weekly Market Review

Monday: The indices had a mixed showing on low volume at the NYSE. There wasn’t a lot of conviction in either direction, which is consistent with late-summer activity and consolidation efforts. Losers had a less than 3-to-2 lead over winners at both the NYSE and the Nasdaq.  

Mega caps had a disproportionate influence on index gains, leading to the outperformance of $SPY and $QQQ. The Vanguard Mega Cap Growth ETF ($MGK) rose 1.2% & the market-cap weighted S&P 500 logged a 0.6% gain. The Invesco S&P 500 Equal Weight ETF ($RSP), meanwhile, closed flat.  

There was no economic data for Monday.  

Tuesday: Stocks had a weak day in lightly traded session. The indices had been steady with somewhat modest losses after $SPX found support near its 50-day moving average. Selling picked up in the last half hour of the day when the S&P 500 broke that level. The indices settled near their worst levels of the day and the S&P 500 closed below its 50-day moving average for the first time since March.  

Investors were still contending with the idea that the market is due for a pullback after its hot run, which created valuation concerns. Growth worries were heightened by a batch of weaker than expected retail sales, industrial production, and fixed asset investment data for July out of China, and a warning from Fitch Ratings that it might be forced to downgrade the ratings of dozens of additional banks. Lagging bank stocks were a notable area of weakness. The Fitch Ratings warning came just a week after Moody’s cut the ratings of 10 smaller US banks.   The slowdown concerns led to the underperformance of cyclically-oriented sectors and the relative outperformance of growth stocks compared to value stocks for the day.  

Economic data included the retail sales report, US imports and exports, and NAHB housing index.  

Total retail sales increase 0.7% MoM in July, beating an expected 0.4% and the prior 0.3%. Excluding autos, sales were up 1% MoM. Discretionary spending on goods continues to be healthy, providing another clue that the tight labor market continues to fend off hard landing scenarios for the economy.    

Import prices grew 0.4% MoM in July and export prices were up 0.7% MoM. Imports doubled expectations and hit its biggest monthly increase since May 2022. Nonfuel imports prices were flat while export prices jumped 0.6% for non-agriculturals. Import and export prices were still down 4.4% and 7.9% YoY, respectively.    

Lastly, the NAHB housing market index fell to 50 in August, compared to an expected reading and prior reading of 56. High mortgage rates and building costs were cited as reasons for the dop in optimism.

Wednesday: The stock market closed down, building on Tuesday’s losses in another light-volume day. Weakness had been more modest in the early day, though, due to a lack of conviction from either buyers or sellers.  

The S&P 500 hit its 50-day moving average after the open, but was unable to breach that key level, which spurred on selling interest. The indices had been trading in relatively narrow ranges until release of the FOMC Minutes from the July meeting induced some whipsaw action.  

There was some knee-jerk selling in response to some hawkish sounding headlines from the minutes. For example, “most participants continued to see significant upside risks to inflation, which could require further tightening of monetary policy.” That view wasn’t surprising considering the remarks made by Fed Chair Powell after the July 25-26 meeting. All together, the minutes didn’t contain anything too surprising.  

Stocks rebounded from the knee-jerk selling but slowed down as the 10-yr note yield climbed above 4.25% and hit a closing high since last October. The S&P 500 closed just above the 4,400 level and at its lows for the session, continuing the consolidation trade that took root at the start of the month.  

Festering growth concerns also contributed to the weakness after China reported another decline in home prices. Domestic housing starts were stronger-than-expected and so was industrial production in July. Also, the Atlanta Fed GDPNow model was updated and is estimating 5.8% real GDP growth in the third quarter, up from 5.0% previously. That news created some rate hike angst in the Treasury market.  

Economic data for the day included the monthly new residential construction report, the weekly MBA mortgage application index, and the total industrial production report.  

Total housing starts increased 3.9% MoM to a seasonally adjusted annual rate of 1.452M units. Building permits increased 0.1% MoM to a rate of 1.442M. The increase in starts in permits was modest, but it was driven by single family units which are badly needed in a supply tight existing home market. The weekly MBA mortgage application index fell 0.8% and refinances fell 2% while purchase applications were flat on the week.  

Total industrial production increased 1% MoM, beating an expected 0.3% rise and a prior 0.8% decline. The capacity utilization rate rose to 79.3%, 0.4% below its long-run average and up from 78.6% in June. Total production was down 0.2% YoY. Most major market groups recorded growth in July, showing that there was a pickup in activity that fits with an economy that operates in growth mode despite the Fed’s rate hikes.        

Thursday: The indices closed on a downbeat note after trading flat in the early day. Initially, the S&P 500 was holding steady with 4,400 acting as a level of support. By the afternoon, a retreat had taken root leading the indices to close near their lows of the day and below 4,400.  

The selling looked consistent with the consolidation mindset that has driven the price action so far this month. Another jump in market rates gave investors an excuse to take more money off the table. The 10-yr note yield rose to 4.31%, settling at its highest level since November 2007.  

This weekly jobless claims data was indicative of a tight labor market, which also contributed to the move in the 10-yr note. Dow component Cisco ($CSCO) was a winning standout after its earnings report while fellow Dow component Walmart ($WMT) logged a decline after its earnings report.  

Weekly initial jobless claims were the only data of note for the day. Weekly initial claims fell to 239k, just below the expected 240k and prior 250k. Continuing claims were higher at 1.72M. Initial jobless claims is a leading indicator and is pacing at levels that are indicative of a tight labor market, which supports a soft-landing narrative.  

Friday: The market had a mixed showing on Friday. Early selling sent the S&P 500 to its lowest level in nearly 8 weeks while the Nasdaq slid to a 10-week low. The indices started to nudge higher around mid-morning on no news. There was a quick move higher in the last 10 minutes of trading that drove the Nasdaq in the green for the only time this session.

The S&P 500 closed flat, the Nasdaq fell 0.2%, and the Dow Jones Industrial Average rose 0.1%. The Russell 2000 had a slight edge, gaining 0.5% today.

Initial weakness was driven by losses in mega-caps, worries about China after property developer Evergrande filed for Chapter 15 bankruptcy protection in the US, and carryover downside momentum after the persistent selling in August.

There was no economic data of note.

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 Recap Market Update Resources Stock Market

Stock Market Recap & Outlook (1/27/23) – Earnings and Core PCE

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 January rally carried on as investors received more market-moving earnings results and data releases this week. The positive bias had the S&P 500 get back above its 200-day moving average and stay there all week.

Things got started on an upbeat note on Monday after an article by Nick Timiraos (chief economics correspondent for WSJ and Fed’s assumed preferred source for divulging information to)  highlighted the possibility of the Fed pausing its rate hikes this spring.

Monday also brought us a survey of businesses by the NABE that conveyed a lower possibility (56% vs nearly two-thirds before) of the U.S. being in a recession or entering one.

The market hit a speed bump on Tuesday with a lot of divergent stock prices for a number of NYSE-listed stocks including Morgan Stanley ($MS), AT&T ($T), Verizon ($VZ), Nike ($NKE) and more. The abnormality quickly led to volatility halts brining many of us to wonder what was going on. The official explanation turned out to be an “exchange-related issue.” The issue seemed to be resolved quickly with announcements of some trades will be declared null.

Defense-related companies Lockheed Martin ($LMT) and Raytheon Technologies ($RTX) reported positive quarterly results.

Market strength was offset by some disappointing earnings/guidance from the likes of  Verizon ($VZ), 3M ($MMM), Union Pacific ($UNP), and General Electric ($GE), along with the news that the U.S. filed an antitrust lawsuit against Google over alleged dominance in digital advertising.

Price action on Wednesday was integral to keeping the rally alive this week. Valuation concerns from Microsoft’s ($MSFT) disappointing fiscal Q3 outlook and expected growth deceleration for its Azure business fueled a broad retreat to kick off the session.

Investors also had a negative reaction initially to results and/or guidance from the likes of Dow component Boeing ($BA), Texas Instruments ($TXN), Kimberly-Clark ($KMB), and Norfolk Southern ($NSC).

Buyers showed up quickly after the S&P 500 dipped below its 200-day moving average to push the market higher. Most stocks either narrowed their losses or completely recovered and closed the session with a gain.

After the strong reversal on Wednesday, Tesla ($TSLA) reported strong quarterly results and outlook, which helped the rebound in the mega cap space, and Chevron ($CVX) announced a massive $75 billion stock repurchase program announcement.

There was also a number of positive data releases Thursday that helped support a positive bias. The Advance Q4 GDP Report increased at an annual rate of 2.9% in the fourth quarter of 2022. The second estimate will be released towards the end of February.

Weekly initial jobless claims unexpectedly decreased by 6,000 compared to the previous week. The current level of 186,000 is well below the 4-week moving average of 197,500.

December durable goods orders came in better than expected, as well. Orders increased 5.6% month over month to $286.9B versus an estimated 2.5%. This is especially a good reading compared to a -1.7% decrease from revised numbers last month. Excluding defense, the durable goods orders were up 6.3% for the month. Inventories, up for 23 consecutive months at this point, increase again by 0.7%.

The rally effort continued on Friday despite Intel ($INTC) reporting ugly results and guidance, KLA Corp. ($KLAC) issuing below-consensus guidance, Chevron ($CVX) missing on earnings estimates, and Hasbro ($HAS) issuing a Q4 profit warning.

On Friday, the PCE Price Index was released. Results were up 0.1% month-over-month while the core-PCE Price Index, which excludes food and energy, was up 0.3%, as expected. That left the year-over-year changes at 5.0% and 4.4%, respectively, versus 5.5% and 4.7% in November.

There was a sharp pullback before Friday’s close, as people took money off of the table heading into a big week of earnings next week from Alphabet ($GOOG), Apple ($AAPL), Amazon ($AMZN), and Meta. Other catalysts include the FOMC decision and the January Employment Report.

Only two S&P 500 sectors registered losses this week — utilities (-0.5%) and health care (-0.9%) — while the consumer discretionary (+6.4%), information technology (+4.1%), and communication services (+3.3%) sectors led the outperformers.

 

Dividend Dollars’ Outlook & Opinion

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

As mentioned in the last market update, I was expecting a red week this week and people took money off the table leading into an earnings heavy week. My other, less anticipated call, was that stocks could break above the downtrend line. This was the outcome to took precedent.

Stocks looked to trend higher this week and was supported by better than feared (notice the “better than feared” vs “better than expected” clarification was intentional) earnings reports and economic data! No data report this week was too good or too bad, and more items like this support the chance of an actual soft landing for the economy. We will have a better feeling for this next week after the FOMC meeting, but in the meantime bias is positive.

147 of the S&P 500 companies have released earnings so far. 50% have beat on top line expectations and 69% have beat on bottom line. The 50% beat rate, should it hold, would be the lowest top line rate since before the pandemic. Next week is a big earnings week and will give us more information on potential earnings recession. This information is tracked using MarketBeat.

 The S&P chart has turned bullish as the market pushed above the downtrend and put some space between price and the SMA 200. We have had the highest number of daily closes above the 200 day SMA in 2023 so far since last spring. The next level I see is around 4,080 that has rejected three times.

Similarly, the Nasdaq Composite index has a level a 11,617 to get over. It is also approaching the change to break above the 200 day SMA for the first time in a year. Additionally, the index is above is 11,500 resistance level. It looks bullish but the coming earnings from mega-cap tech names have the potential to move it.

Overall, stocks are riding recent bullish momentum and are being supported by technical developments. The market appears to be hopeful that the Fed will show a less aggressive stance on rates. We have seen this optimism in the past before, but we haven’t seen the Fed move into a stock friendly stance. Maybe that happens at the next meeting, maybe we get more information on potential rate hike path.

We will see what happens with the Fed next week and will have a better feel  of what’s going on in tech. With VIX as low as it is, a slurry of stocks reaching 52 week highs, decent earnings and data, the bulls appear to be in control for the near term. Potential for volatility next week is high. I think the market is moderately bullish in the first of the week then could be volatile in either direction depending on those factors.

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 (1/20/22) – PPI and Earnings Brings a Whipped 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 Review

The 2023 rally hit a speedbump week as investors may have been looking to take some money off the table after the gains from the last two weeks. Growth and rate hike concerns, which had been put on the backburner to start the year, seemed to be back in play. 

Early on Wednesday, the market initially reacted positively to the slowdown in inflation reflected in the December Producer Price Index (PPI) of -0.5% that beat expectations by 0.4%. Any optimism that may have come from the pleasing PPI report quickly faded as weak retail sales and manufacturing data was released thereafter.

Retail sales fell 1.1% month-over-month in December compared to expectations of -0.8%. This comes off of a revised 1.0% fall in November.

Industrial production fell 0.7% month-over-month in December compared to a -0.1% expectation. This, also, comes off a revised decrease to 0.6% for November.

Following these releases, the main indices sold off on Wednesday. Selling efforts had the S&P 500 take out support at its 200-day moving average. It could be argued that data is suggesting that the Fed is likely to remain on its rate hike path in spite of a weakening economic backdrop, increasing the risk for a policy mistake to trigger a deeper setback and therefor increasing the selling efforts.

Market participants also received official commentary on the economy when the FOMC released its latest Beige Book on Wednesday afternoon. “On balance, contacts generally expected little growth in the months ahead.”

St. Louis Fed President Bullard (non-FOMC voter) added fueled the market’s concerns saying that he would prefer that the Fed stay on a more aggressive path but added that the prospects for a soft landing have improved.

Thursday’s trade, a mostly choppy and sideways day, looked a lot like Wednesday’s trade with investors reacting to more data and commentary pointing towards weakening growth and the possibility of the Fed making a policy mistake.

Building permits decreased for the third consecutive month in December to 1.330 million. One surprising positive note out of the report was that single-family starts grew 11.3% month-over-month.

Weekly initial claims were released at the same time, which decreased to 190,000, their lowest level since late September. There are no major weaknesses in the labor market that could put a stop to the Fed’s hiking path.

JPMorgan Chase CEO Jamie Dimon said in an interview Thursday morning “I think there’s a lot of underlying inflation, which won’t go away so quick,” adding that he thinks rates will top 5.0%.

As earnings season progresses, the main concern for the market is the potential that weaker growth will translate to cuts in earnings estimates and downward guidance.

Goldman Sachs ($GS) sold off sharply on Tuesday after reporting below-consensus earnings (Actual EPS 3.32 vs 5.77 Average Estimate) and revenue (Actual 10.59B vs 10.91 Average Estimate), along with increased provisions for credit losses.

So far, however, quarterly results have generally received positive reactions from investors. In contrast to Goldman Sachs, Morgan Stanley ($MS) received a positive reaction despite a Q4 earnings miss.

Another notable earnings report was Netflix ($NFLX), which surged 8.5% on Friday and led to interest in the tech/growth space. It felt like this pushed a sentiment shift and produced the rally effort on Friday.

The rebound effort to close out the week had the Nasdaq Composite recoup all of its losses while the S&P 500 and Dow Jones Industrial Average put a nice dent in their weekly losses. The S&P 500 was able to climb back above its 200-day moving average by Friday’s close.

Only three S&P 500 sectors were green this week — communication services (+3.0%), energy (+0.7%), and information technology (+0.7%) — while the industrials (-3.4%), utilities (-2.9%), and consumer staples (-2.9%) sectors had the largest losses.

The 2-yr Treasury note yield fell two basis points this week to 4.20% and the 10-yr note yield fell three basis points to 3.48%. The U.S. Dollar Index fell 0.2% to 101.99.

WTI crude oil futures rose 2.3% to $81.69/bbl and natural gas futures fell 5.3% to $3.03/mmbtu.

Separately, Treasury Secretary Yellen notified Congress via a letter that the debt ceiling has been reached, prompting the Treasury Department to begin employing extraordinary measures.

Dividend Dollars’ Outlook & Opinion

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

As I mentioned in the last market update, I predicted a red week this week but that we wouldn’t break below the 100 day SMA. I was correct, but I was not expecting a rally as strong as we got on Friday. After rejecting against the downtrend line and falling under it, we only stayed there for a day before trying again. Truly some wild price action!

My main reason for predicting this is due to my assumption that quarterly earnings this season will show slowing growth. Earnings so far has been mixed, but that slowing growth is starting to as we get deeping into this earnings season. This week 26 companies in the S&P 500 reporting earnings, 15 of them beat consensus EPS expectations. 55 companies of the 500 have reported Q4 results so far and have beaten EPS 69% of the time and revenue estimated 55% of the time.

Year over year, Q4 earnings are -4.5% lower versus a -4.1% estimated from Schwab Managing Director of Trading and Derivatives. Revenues are +7.4% higher year over year versus a 3.8% estimate.

Though there was lots to talk about, this week was a moderate week for economic data materially. The key was the inflation report in PPI which eased quite a bit, it pushed the market higher very briefly before falling down sharply. A slowdown in inflation should be great news for markets since it means the Fed’s rate hikes are having effects. So that brief downturn (and the sideways movement following the CPI) doesn’t make much sense to me, unless you believe inflation expectations were already baked in.

So I believe the movement was mainly a technical one as we rejected hard off the strong downtrend line. After pushing higher through the 50 day SMA last week (dark blue line), the market stalled at the convergence of the 200 day SMA (white line) and the downtrend. The market has failed to break above that line 5 times now.

Given how firmly that line has held, I believe a significant breakthrough above it will be needed before the beginning of the next longer-term uptrend. And next week could be the deciding week for that! Next week is the biggest week for earnings in this earnings season so far.

SPX open interest change for the past week was larger to the put site (call OI +3.0% and put OI +4.4%) as was the aggregate changes in exchange traded products (includes SPY, QQQ, DIA, etc.). This could be interpreted to be bearish. However, open interest participation as a whole is +19.2% greater than 2022 levels which may be bullish for the long term. VIX levels seem neutral in the near-term, however, the VIX IV Gap is lower is moderately bullish.

Price action through Wednesday should be mostly indicative of only earnings releases as there are no noteworthy economic reports through then and the indicators mentioned above are a bit mixed. Thursday brings us the first estimate of GDP for Q4 and durable goods orders for December, both of which can cause a market reaction. Then Friday does a one up and brings us the Core PCE reading for December and a sentiment report for January.

This PCE report is about the only item left that could affect the outcome of the next Fed rate hike, which I predict to be 0.25%, but those results would have to be extremely significant to even put a 0.50% rate hike on the table.

I’m thinking risk off continues into next week after a possible brief approach up to the downtrend line again followed by a rejection down. However, be ready flip sides if earnings beats are common next week as that may be push strong enough to break above. And if we break above its off to the races.

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