Tag: Economics

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Economics Market Recap Market Update Stock Market

Stock Market Recap & Outlook (3/17/23) – Continued Banking Concerns Amongst Surprising Strength

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

Summary:

Banking scares that surfaced late last week continued to worry investors throughout this week. Continued developments of the situation and actions form the Fed, Treasury, and FDIC kept us all on our toes. Those actions were designed to shore up confidence in the banking industry, but price action did not reflect that.

With investors lacking confidence, a risk-off mentality was behind most price action this week. Certain mega-caps viewed as distant from the banking fallout were bought hand-over-fist. Companies with strong balance sheets and perceived recession resiliency, like $GOOG, $NVDA (sorry TagTrades), and $MSFT. These stocks all gained more than 12% this week.

$MGK, the mega-cap growth ETF from Vanguard was up over 5% this week, helping to prop up returns for the main indexes despite an otherwise weak market.

A flight to safety also showed itself through an outperformance of defensive sectors like utilities (up over 3%), consumer staples, and health care sectors (both up over 1%).

Treasury note yields tanked this week, driven by a belief that the Fed won’t be able to raise rates as much as previously thought in lieu of the banking issues. However, the CME FedWatch Tool shows a 59% probability of 25 basis point hike at the next meeting, and a 52% of another 25 basis point hike at the May meeting after that.

Meanwhile, the European Central Bank agreed to raise its rate by 50 basis points this week despite concern surrounding Credit Suisse ($CS)

Monday:

Monday started a volatile week for us after a busy weekend of banking sector news. The market learned through a joint statement from the FDIC, Treasury, and Fed Market that all depositors at Silicon Valley Bank and Signature Bank of New York would be fully protected even though both had been taken over by regulators.

he Fed also introduced a Bank Term Funding Program that will help banks avoid selling government securities at a loss by allowing them to pledge those securities to the Fed, which will value them at par, as collateral.

These items together makes it so that all depositors would not lose money and that banks would have a different avenue to raise liquidity through the BTFP rather than selling assets at a loss like $SVB did. Smart moves, in my opinion, however they did not calm the stock markets. In fact, their approach created a feeling that this banking issues is larger than we initially thought.

Regional Banking ETF $KRE fell another 12% and SPDR S&P Bank ETF %KBE fell another 10% with the biggest individual losers being $FRC, $WAL, $CMA, and $PACW.

Still, the main indices spent a good portion of the session in positive territory thanks to gains in mega-caps as stated in the summary.

Treasury yields declined as a potential less aggressive Fed is priced in due to this bank fallout and the potential for it to have a disinflationary impact on the economy.

Tuesday:

Stocks opened higher, bolstered by strength in the bank stocks and a small measure of relief that the February Consumer Price Index (CPI) wasn’t much worse than feared.

The quickly oversold market brought some opportunistic trading moves. The S&P 500 would climb as much as 2.1% to 3,937 before stalling at the test of its 200-day moving average (3,939).

Treasuries were selling off with some of the safety premium they had enjoyed in recent sessions being drained away and CPI data influencing prices. 

The rebound momentum reversed after failing to break through its 200-day moving average. Bank stocks began to pull back due to a report from the S&P that they had put $FRC on a credit watchlist shortly after Moody’s had downgraded the US banking system to Negative from Stable.

The day looked to end poorly excepted for a large buying effort in the last 45 minutes of the day that left major indices ending on an upbeat note.

Data on Tuesday was the CPI release and the NFIB Optimism Index.

Total CPI was up 0.4% MoM in February, in line with expectations, and up 6% YoY. This was the smallest 12-month increase since September 2021. Core CPI was up 0.5% MoM against a consensus of 0.4%. The key takeaway from the report was that inflation is still (no surprise here) well above the 2% target. Banking problems have mainly taken a 50 point hike off of the table of the next meeting, this CPI reading definitely keeps a 25 point hike as a possibility. Not raising rates may signal that the banking issues are bigger than people think, so the Fed must tread carefully here.

The February NFIB Small Business Optimism Index had a slight increase to 90.9 from 90.3 last month.

Wednesday:

Cautious trading was back in play. Selling interest on financials picked up after Credit Suisse’s ($CS) largest shareholder said they can’t give additional financial help due to regulations.

This news brought worries that banks may be more risk-averse, tighten their lending standards, and manage their balance sheets more conservatively. Those measures would slow economic growth and lead to further downward revisions to earnings estimates. So, it was not surprising that cyclical areas of the market were under the most pressure.

Things shifted by the close. Some nice gains in the mega cap space had the main indices close near their best levels of the day.

The upside moves were also helped along by the Swiss National Bank saying “Credit Suisse meets the capital and liquidity requirements imposed on systemically important banks. If necessary, the SNB will provide CS with liquidity.”

Data on Wednesday brought us the February Retail Sales reading, the PPI reading, and a number of other less significant pieces that I won’t mention.

February retail sales fell by -0.4% versus a consensus of +0.2%. Excluding autos the number was -0.1%, in line with expectations. The key takeaway from the report is that there were declines in most retail sales categories following large gains in January, suggesting consumers are being more conscious about their spending budgets.

February producer price index came in at -0.1% versus an expected 0.3%. Core PPI was flat compared to an expected 0.4% increase. This is overall a good inflation report, and should be pleasing to the Fed.

Thursday:

It shaped up to be a pretty good day in the stock market, but it didn’t start out that way. It started out with bank stocks remaining under pressure and Treasury yields declining in continued flights to safety.

At their lows for the day, the Dow, S&P 500, and Nasdaq were down over .5% as news came out that the European Central Bank agreed to raise its key policy rates by 50 basis points due to inflation being projected to remain too high for too long.

Sentiment shifted around midmorning, though, when a Wall Street Journal report highlighted a potential solution to the issues at First Republic Bank ($FRC). The report suggested big banks had been discussing a capital infusion deal for FRC totaling $30B.

Also, sentiment in the banking sector improved as Treasury Secretary Yellen told the Senate Finance Committee that “Americans can feel confident that their deposits will be there when they need them.”

For data on Thursday we received the Weekly Initial Claims reading, the Housing Starts report, and the February import/export data.

The Weekly Initial Claims came in well under the expectation at 192K. With initial claims were back below 200,000, we see that employers are reluctant to let workers go.

February Housing Starts hit 1.45 million, beating the expectations by over 100,000. Building Permits  hit 1.524 million, beating expectations by almost 200,000. The key takeaway from the report is that the stronger-than-expected activity wasn’t just a multi-unit story. Single-family starts were up 1.1% month-over-month while single-family permits increased 7.6%.

February Import Prices -0.1, February Import Prices ex-oil 0.4%, February Export Prices 0.2%, and February Export Prices ex-ag. 0.1%. The takeaway here is the moderation in year-over-year changes. Import prices were down 1.1%, versus up 11.4%, for the 12 months ending February 2022. Export prices were down 0.8%, versus up 16.8% for the 12 months ending February 2022.

Friday: 

On Friday’s quadruple witching options expiration day, investors were thinking risk-off again. Thursday’s strong finish was largely a relief rally on news. That relief short lived and investors sold FRC again on Friday following a dividend suspension.

Market participants were also reacting to reports that banks borrowed $11.9 billion from the Bank Term Funding Program and a record $153 billion from the Fed’s discount window for the week ending March 15, exceeding anything during the financial crisis. More and more items to digest when thinking about the health of the banking industry. Bank stocks were largely down for the day.

Selling efforts were broad in nature, excluding some mega-cap names.

Friday had an industrial production release and the Consumer Sentiment Index preliminary release for data.

Total industrial production was unchanged month-over-month in February, compared to an expected 0.5% increase. The capacity utilization rate held at 78%, also compared to an expected 0.5% increase. The key takeaway from the report is that industrial production activity is softening, evidenced both by the year-over-year decline in total production and a capacity utilization rate that is near its lowest level since September 2021.

The preliminary University of Michigan Consumer Sentiment Index for March dropped to 63.4 from 67 last month. It was expected to increase to 67.2. In the same period a year ago, the index stood at 59.4. Roughly 85% of responses had been recorded prior to the failure of Silicon Valley Bank. The key takeaway from the report is the moderation in inflation expectations, which will please the Fed somewhat, although year-ahead inflation expectations still remain well above the 2.3-3.0% range seen in the two years prior to the pandemic.

Overall, 2 of the 3 main indices ended the week on a gain. Mega caps and defensive sectors ended higher while energy, financials, industrials, and materials made substantial losses during the week.

Dividend Dollars’ Outlook & Opinion

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

This week was heavy with economic data (two key inflation reports) and plenty of banking news to keep up with. Though both inflation reports were not negative, both were overshadowed by investor anxiety related to banking.

With all of the fear surrounding banking and the treasury market volatility, it did not feel like a strong week for the markets. However, it surprisingly was!

SPX ended below all of its key moving averages at the end of the week, though it did temporarily break above the 200 day and 100 days averages on Thursday. Friday it struggled to get back above those marks.

A number of indicators have surprisingly moved into bullish territory this week including VIX OI change, ETF OI change, and VIX OI put/call ratios. SPX OI put/call ratios and general equity OI changes worsened over the week.

Banking sector uncertainties and rate changes signal more volatility to come, even though markets may continue to trend slightly higher overall, especially with a light economic calendar next week (except for the interest rate decision).

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 (3/10/23) – The Collapse of Silicon Valley Bank

FILE PHOTO: SVB (Silicon Valley Bank) logo is seen through broken glass in this illustration taken March 10, 2023. REUTERS/Dado Ruvic/Illustration

I apologize for missing the report last week, was out on vacation but we are back now and have TONS to cover!

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

It was a big losing week for the market as investors analyzed Fed Chair Powell’s testimony before Congress, the February employment report, and news of SVB Financial’s Silicon Valley Bank being shut down. All major indices ended the week down over 3.5%.

Monday started on an upbeat note with early gains being supported by positive moves in some mega cap stocks. Apple ($AAPL) was a leader in that respect after Goldman Sachs initiated coverage with buy rating with a $199 price target.

Under the surface though, there was some anxiousness felt as the market waited for key events in the week ahead. Even at midday, as the indices were trading near their highs for the day, the number of stocks declining was greater than the number of stocks increasing.

Mega cap strength started to face and selling ramped up in the Treasury market. The main indices were in a slow grind lower for the rest of the day.

Economic data for the day was only the January Factory Orders. This fell 1.6% month-over-month (consensus -1.8%). Shipments of manufactured goods increased 0.7% MoM after falling 0.6% in December. The key item in the report was the strength seen in nondefense capital goods orders, excluding aircraft. This criteria, which factors into GDP forecasts, were up 1.1% after a 0.6% decline in the last reading.

Tuesday started mixed with the market waiting for Powell’s testimony before the Senate Banking Committee. Both stock and bond markets reacted quickly to key comments.

Powell stated, “Although inflation has been moderating in recent months, the process of getting inflation back down to 2% has a long wat to go and is likely to be bumpy… the latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.”

Powell’s Q&A portion afterwards added that data doesn’t suggest that the Fed has overtightened yet. Data suggests they have more work to do, increasing the likelihood that peek rates are higher than the Fed’s projections from the December meeting may be increased. The hearing and Q&A session ultimately suggested that a 50 point hike is back on the table. Markets moved lower throughout the day upon this news.

Data on Tuesday was the January Wholesale Inventories and the Consumer Credit reading. Inventories were down 0.4% MoM and was in line with expectations.

Consumer Credit increased by $14.8B in January compared to the expected $22.9B. The takeaway is that consumer credit expansion is slowing, likely a result of rising interest rates. The decrease was driven predominantly by revolving credit and was the 2nd lowest increase in the last 12 months.

Wednesday had the markets start off choppy as the second day of Powell’s testimony kicked off. Treasury markets signaled economic concerns with the 2 year and 10 year spread hitting its widest margin since 1981.

With that move, stock prices deteriorated and the major indices slipped closer to their lows of the day. They did close above the lows, though, thanks to mega-caps running in the last hour of the day. That momentum slowed with the S&P 500 neared its 50 day moving average ($3,997) which turned from support to resistance on Tuesday.

Economic data for the day included the Weekly MBA Mortgage Applications, ADP Employment Change, the JOLTs job report, and the January trade deficit reading.

The weekly MBA mortgage application index rose 7.4% with refinancing applications increasing 9.0% and purchase applications 7.0%.

The ADP Employment Change showed private payrolls rose by 242,000 in February against a 195,000 consensus. The January reading was revised upwards by 13,000.

The JOLTS Job Openings reading total 10.8M in January after a 0.2M upward revision for December.

The trade deficit for January grew to $68.3B compared a consensus of -$69B. December numbers were revised upwards by $0.2B. Imports for January were $9.6B more than December imports. Exports were $8.5B more than December exports. The takeaway here is that both imports and exports increased compared to December, reflecting a pickup in global activity and demand.

Then Thursday came around, and the situation that we’ve all been watching unfold for days now had kicked off.

The day started green, lead again by mega-caps and hope that higher-than-expect jobless claims could be followed by a weaker-than-expected nonfarm payrolls reading on Friday.

Initial jobless claims for first week of March increased by 21,000 to 211,000 compared to a consensus of 198,000. Continuing claims increased by 69,000. This was the highest claims level since December and teased the idea of some labor softening. However, current claims levels still are at levels that are indicative of a tight labor market overall.

The opening was short lived as bad news and price action in the banking space weighed down the market.

The S&P 500 cut under its 200 day moving average and closed near lows for the session in a steady and broad based sell off.

Bank stocks took the bulk of the losses as concerns about rising rates, higher deposit costs, and weaker loan demand collided with the news that Silvergate Capital ($SI) is voluntarily liquidating and that SVB Financial Group ($SIVB) sought to raise capital through the sale of marketable assets at a loss and a potential stock offering to combat their increased cash burn.

The second part of that last paragraph was the main trigger of worries about the state of deposits and capital positions for smaller banks that drove major selling interest.

Ultimately, things break when the Fed is in an aggressive tightening cycle, and banks, whether or not they are involved in a specific problem, will get pulled into the downfall regardless of their roll.

Treasury yields also fell lower that day, yet stocks did not respond in the opposite way. This leads us to believe that the flight to treasuries was more of a flight-to-safety than anything else.

Friday opened considerably lower and kept that theme up for most of the day. The employment report brought some good news with nonfarm payrolls being strong and average earnings growth being weaker, but the SVB Financial situation was by far the largest driver of price action. A broad sell off brought the S&P 500 under 3,900 on big volume.

Silicon Valley Bank was shut down by the FDIC in the late morning. This is the second largest bank to get shut down by the FDIC since Washington Mutual in 2008.

The FDIC also created the Deposit Insurance National Bank of Santa Clara to protect insured depositors of $SIVB. This news followed earlier reports that the Founders Fund (Peter Theil’s VC fund) had advised companies to pull their money out of the bank and that deposit outflows were outpacing the process of selling SVB to a prospective buying banks.

Wide concerns about SVB’s troubles and their potential contagion effects continued the flight-to-safety in the Treasury markets on Friday.

Most views from analysts so far are that SVB’s situation won’t be a systematic banking problem given how well capitalized the system is. That said, the market saw a rebound effort squised after it was reported the SVB was being shut down. The market lost their hold and broad based selling picked up putting the S&P 500 to a low of $3,846.

The sudden collapse of SVB could leave billions of dollars belonging to companies and investors stranded. As of the end of 2022, SVB was the 16th largest bank in the US with just over $200B in assets. Their tech and start up focus has felt the brunt of the aggressive interest rate hikes by Fed.

The Treasury bond assets they sold on Thursday incurred a $1.8B loss as the value of those bonds fell with the rising rates, the value of their hold to maturity assets have incurred an even larger, though unrealized, loss.

The main office and all branches will reopen on Monday and all insured depositors will have full access to their insured funds. That is good news, however, roughly 89% of the banks $175B in deposits were uninsured as of the end of 2022. What happens to these funds is anyone’s guess.

We can assume that the FDIC is working this weekend to find a bank that is willing to acquire SVB. A merger by Monday could secure the safety of those uninsured deposits, but no deal is certain.

I have seen headlines that Roblox Corp ($RBLX) and Roku Inc ($ROKU) have hundreds of millions deposited with the bank. With most of these funds uninsured, share prices have dropped by a considerable amount.

Collectively, the banking sector has lost over $100B in stock market value from Thursday and Friday, with European banks also feeling some pain. Some analysts are forecasting more pain for the sector as hidden risks become more clear.

All eyes will be on the FDIC and if they are able to secure an acquirer for SVB or if they will be force to liquidate the bank.

Dividend Dollars’ Outlook & Opinion

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

To be blunt, this week was insane. The market made big moves down on the SVB news. Economic readings and Fed speak were worth paying attention, but when it really came down to it SVB and the concern it has caused for the banking sector has defined this week. It may even be the definitive moment for the year.

This week was so red that $SPX broke down through numerous key points. The week started above every key point of support, but quickly took them all out as the week came to an end. The market broke through the 50 day moving average first on Tuesday, then the 100 and 200 day moving average on Thursday, and broke down below the long term downtrend established at all time highs in the beginning of 2022 before testing the bear market level at $3,855.

Price action broke down below that level briefly before ending the week just above it at $3,861.86.

As you can see by the three circles I have on the chart, following significant breakdowns underneath the bear market level, the following days are extremely volatile. I expect the next fews days to not be an exception, if anything they’ll turn up the volatility as the SVB situation unfolds.

Up until this week, the market in 2023 has been playing red-light green-light with inflation readings and Fed meetings. Markets have been quick to react to every little item that gives insight into what the Fed will do moving forward.

Now we had a giant wrench thrown into that theme this week. Fed Powell’s testimony affirmed the position that Fed is willing to pick up the pace on rate hikes if economic data shows it is needed. Add to that, SVB has collapsed due to the effects that these rate hikes have had on them as bank and their customers. Granted, there’s a lot to pick apart and criticize with that situation as safe and sound banking strategies are not wholly evident, however, it is yet to be seen if this situation will change the Fed’s approach at all.

Will they remain focused on inflation and protecting the value of the dollar despite the giant problem on the horizon that is the SVB collapse? We will have to wait and see till the next rate decision on 3/22/23.

Because of this, the CPI report on Tuesday and the employment reports that follow may be difficult for the market to wrap their heads around the meaning of those readings. Anticipate a lot of volatility as all eyes are on this situation and Fed.

I anticipate more red next week, mostly due to investors being jaded by SVB and the effects on the market, but also as a result of the CPI and PPI reports. Forecasts for both are expecting an improvement on the MoM and YoY readings. If these come in higher than expected, expect the negative reaction to be larger than normal.

That’s it for my recap! Go check out my portfolio update to see how I am navigating these markets while building dividend-based wealth.

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 Stock Market

Stock Market Recap & Outlook (2/24/23) – Inflation is back! FOMC minutes and PCE shock!

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

This shortened holiday week ended up being another losing one, held down by the same issues that beat down price action last week. There’s a lingering sense that the market was due for consolidation and a growing idea that the Fed will keep rates higher for longer.

Fed concerns were the focus midweek when the FOMC minutes for the February 1st meeting were released. They weren’t aggressively hawkish or dovish, their default position continues to be a rate-hike position.

Markets are aware that many of the data releases since the last FOMC meeting are not likely to change the Fed’s mindset. A stronger than expected January employment report, the stronger than expected ISM Services PMI, the January CPI and PPI reports, all capped off by this week’s stronger than expected core PCE, which is the Fed’s preferred inflation measurement.

After the hot PCE reading on Friday, St. Louis Fed President Bullard said that “it appears that the Fed may be able to disinflate in an orderly manner and achieve a soft landing”.

Prior to that, there was some movement higher on Thursday, following NVIDIA’s ($NVDA) earnings and positive guidance. However, the market primarily had downside bias this week and took out its 50-day moving average before testing the 200-day average.

The Treasury market was boosted off of the price action in equities this week, creating tough competition for returns from stocks. The 2-year note rose to 4.78% and the 10 year note rose to 3.95%. The dollar index also rose this week by 1.4%.

None of the 11 S&P sectors made gains this week. Energy was close at -0.04% while consumer discretionary and real estate were hit the hardest will losses over -4%.

Below are summaries of daily price action throughout the week:

  • Tuesday
    • The week started lower on increasing geopolitical tensions and continued money being taken off of the table following last month’s rally for a close under 4,000.
    • News reports state that China’s President Xi Jinping may go to Moscow in April or May to meet with Putin and encourage peace talks, a view that seems to run counter to the assumed supportive relationship between Xi and Putin
    • Disappointing guidance came from Home Depot ($HD) and Walmart ($WMT) and helped push consumer discretionaries down to last place.
    • The January Existing Home Sales fell -0.7% to 4 million (consensus 4.12). Key takeaway is that sales are still under pressure of high mortgage rates and economic uncertainty. This keeps homes on the market for longer and may cause a moderation in median prices over time.
  • Wednesday
    • The day started on a positive note, but moves were modest as the market waited for the release of FOMC minutes.
    • The FOMC minutes indicated that “more evidence of progress across a broader range of prices would be required to be confident that inflation was on a sustained downward path.” A number of members also wanted raise rate by 50 points at the meeting
    • .Immediately when the minutes were released, price action in the market whipsawed before settling into a slow decline
  • Thursday
    • This day was a more upbeat day, breaking a 4 day losing streak on $SPY following the earnings and good guidance from NVIDIA.
    • Prices got pushed down as other disappointing earnings came out ($EBAY, $DG, and $DPZ are some names that come to mind in that regard). The key takeaway was that consumers are slowing their discretionary spending causing slower growth and further cuts to earnings estimates in the sector, all while the Fed looks intent to raise rates higher.
    • Downside pushed the S&P below the 4,000 level and its 50 day SMA. Buyers stepped in and finished the session with decent gains.
    • Initial Jobless Claims declined to 192k (consensus 200k) and continuing claims decreased to 1.654M. The low levels of initial claims contribute to expectations for the Fed keeping rates higher longer.
    • The second Q4 2022 GDP estimate showed a downward revision to 2.7% (consensus 2.9%). The drive down was moved by less personal spending which was partially offset by an increase in non-residential investment. This could be an off-putting mix for the Fed. Growth and inflation is still running hot, one of them must give.
  • Friday
    • The week ended with board-based selling following the hotter than expected PCE reading.
    • The Core-PCE price index rose 4.7% year-over-year versus 4.6% in December. Real disposable income was up 1.4% month-over-month and personal savings rate increased to 4.7%, indicating that consumers can keep spending.
    • The key was that the report showed inflation, not disinflation, and good spending potential which can keep the economy running above potential. That combo causes concerns about inflation being sticky and prompting the Fed to stick to tightening for harder and longer than expected.
    • The S&P closed below its 50 day SMA and tested its 200 day SMA, recovering a bit from the lows of the day before close.

Dividend Dollars’ Outlook & Opinion

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

This week was another week of consolidation and modest losses that we have been discussing in this outlook section for 3 editions now.

This was a light week in terms of quantity of economic data, however, the few releases we did have were heavy hitters. The Core PCE reading confirmed that the inflation moderation which began in June of last year has mostly leveled off, and at a level that is much higher than the Fed would like. Pair that with the fifth straight week of initial jobless claims under 200k, and you can see that the labor market is strong and able to withstand further tightening.

Earnings continued this week with 55 S&P 500 participants reporting. 44 of them beat EPS expectations. Overall, 98% of the S&P stocks have reported. Below so far are the aggregate beat rates this quarter compared to prior quarters. These figures are tracked using MarketBeat.

Now moving on to technicals. Last week pointed to slightly bearish with high volatility, and that was what we got! Within a month after the SPX broke through the long-term downtrend (red channel), 4,100 level (top green line), and hit a technical golden cross, did it struggle to keep strength. SPX broke through support at the 50 day SMA on Friday, and has the 200 and 100 day SMA not far under it for support and are converging with the downtrend. Who knows if these will hold, but they should at least slow the downtrend.

Other metrics have shifted moderately bullish. VIX put OI grew more than call OI, SPX call OI grew more than puts, and call OI for major ETFS also grew more than puts for the week, a moderately bullish change. However, the Vix volume put to call ratio moved from neutral to moderately bearish this week at 0.34. SPX volume put to call ratio looks neutral.

Overall, technical have deteriorated and inflation is not moderating. With earnings season basically over, three weeks till the next inflation report, four weeks till the next rate hike, the market may move on news headlines and Fed speak more than usual in the near term.

Technicals and inflation look we move down, a number of metrics have improved and look like we move up, and major economic releases are a few weeks out. Short term time frame looks to be volatile and set up for an oversold bounce before chop and downtrend continues. With that said, I’m neutral for next week and could see the market being moderately down or up. This is one of those weird weeks looking forward where all this analysis may not really help!

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

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Earnings Economics Market Recap Market Update Stock Market

Stock Market Recap & Outlook (2/3/23) – Continued Earnings and FOMC Meeting

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

This week started slowly as the market looked to take some money off the table following a strong January and waiting for the FOMC meeting. On Monday, the Nasdaq and S&P 500 were up 11% and 6% for January.

The slow Monday was kicked off by an article in WSJ by Nick Timiraos (chief economics correspondent for WSJ and Fed’s assumed preferred source for divulging information to) indicating that Fed officials were concerned that inflation could return to higher levels due to tight labor markets. He added that the Fed’s interest rate strategy could depend on how much members believe the economy will slow.

Anticipation of the Q4 Employment Cost Index, the January ISM releases, and the January Employment Situation Report and over 100 S&P 500 companies reporting earnings this week also added to the slow start.

The momentum changed on Tuesday as the market looked to end January with some gumption. A well-received Q4 Employment Cost Index and weaker-than-expected January Chicago PMI and Consumer Confidence data also may have led to the idea that the Fed may look to pause rate hikes.

The latter point was corroborated by another Nick Timiraos article that suggested the Employment Cost Index report could increase the possibility of Fed officials agreeing to pause the rate hikes sooner rather than later.

Wednesday came in strong to kick off the month of February . This followed the FOMC’s unanimous decision to raise the target range for the fed funds rate by 25 basis points to 4.50-4.75%, as expected. In the press conference afterwards, Powell did not go out of his way to rein in the market’s enthusiasm.

Mr. Powell acknowledged that the “Full effects of rapid tightening so far have yet to be felt and we have more work to do.” Core services inflation is still running too high, which creates a basis for ongoing rate hikes. Overall, though, Mr. Powell was generally encouraging about the signs of disinflation.

Also, he did not strictly express disagreement with loosening financial conditions and maintained that he thinks there is a path to getting inflation back down to 2% without a significant economic decline or increase in unemployment.

A huge earnings-driven gain in Meta Platforms ($META) kept rally effort strong at the start of Thursday’s session. The earnings results and reception of the FOMC materials encouraged a sense that earnings growth and monetary policy may be better than feared this year.

Some data releases on Thursday also helped with the market’s move higher. The Q4 Productivity report showed a drop in unit labor costs, an affirmation of falling inflation costs. Separately, weekly initial jobless claims hit their lowest level (183,000) since April 2022, providing additional confirmation of a strong labor market that could absorb the impact of a soft landing.

The rally did hit a speed bump at the 4,200 level for the S&P 500. The market may have reached an overextended area, though it did not last long as the main indices were able to climb back towards session highs ahead of Thursday’s close.

However, Thursday wasn’t all sunshine and rainbows as a sizable loss in Merck ($MRK) after its quarterly results kept the price-weighted Dow Jones Industrial Average in negative territory for most of Thursday.

Friday turned out to be a losing session with disappointing earnings and/or guidance from Alphabet ($GOOG), Amazon.com ($AMZN), Starbucks ($SBUX), and Ford ($F) despite a strong gain in January nonfarm payrolls (+517,000) and a stronger than expected January ISM Services PMI (55.2%) that returns the index to growth levels.

The strong data created some doubts as to whether the Fed will pause its rate hikes soon and cut rates at all before the end of the year, contrary to the case for rates in the early weekdays.

The fed funds futures market is now accounting for the prospect of a third 25 basis point rate hike in May. According to the CME FedWatch Tool, the probability of a rate hike in May, in addition to the one that is fully priced in for March, increased to 48% from 33% last week.

Many stocks pulled back on profit-taking efforts following the earnings and economic news. Apple ($AAPL), was the exception. Apple declined 2% off the open but quickly bounced and finished the day up 2.4%.

Only three S&P 500 sectors registered losses this week — energy (-5.8%), health care (-0.13%), and utilities (-1.42%) — while the communication services (+5.26%), information technology (+3.71%), and consumer discretionary (+2.34%) sectors logged the biggest gains.

Dividend Dollars’ Outlook & Opinion

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

This week crushed my moderately bullish outlook from the prior week. The market is at nearly a 9% in a little more than a month and have given back very little, even with earnings season being a bit mixed!

Q4 earnings season has reached the halfway point so far. 103 S&P 500 companies reported earnings and 74 of them beat consensus expectations this week. That puts us exactly at 250 of the 500 reporting results. The average EPS and Rev beats both increased this week, to 70% and 52% respectively. From a growth standpoint, these results are still lower compared to YoY results from last Q4. This information is tracked using MarketBeat.

Since the market broke out of the long term resistance, it has been off to the races. As we mentioned last week, the next point of resistance was around the 4,100 area that had rejected three times prior. The market broke through that level on Wednesday with strength. Then, on Thursday, we got a golden cross when the 50-day SMA moved above the 200-day SMA (yellow circle) which is a bullish technical indication.

Now that the market is above the 4,100 area, that resistance has turned into support and will be an area we want to watch if we see a small retracement in the coming days.

Overall, after a tough 2022 with lots a tax-loss harvesting ending the year, traders’ cash piles appear to be getting put to work. Communication, Consumer Discretionary, and Tech sectors priced significantly lower than where they were a year look like the areas that the cash is getting sent to. However, with a gain of almost 9% YTD, almost 3% of that coming from this week, it’s been a little too much too fast.

Vix OI change this week looks to be moderately bearish, SPX OI change is moderately bullish, ETF (SPY, QQQ, DIA, and other key ETFs) OI change is moderately bearish. The OI put call ratios for those items are neutral, moderately bearish, and moderately bearish respectively.

Vix levels in general are in the normal zone as of Friday’s close, with futures trading just slightly higher. Both are neutral indicators.

Economic data for next week is sparse, with the main items being jobless claims and consumer sentiment reports. I’ll be curious to read the wholesale inventories report and the consumer credit report, though these rarely have effects on the market.

With earnings season now past the halfway point, the next fed meeting 6 weeks away, and a number of mixed Vix and option indicators, I wouldn’t be surprised to see a bit of consolidation or small moves for the next few weeks.

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 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

Categories
Earnings Economics Market Recap Market Update Stock Market

Stock Market Recap & Outlook (1/13/22) – CPI Report & Q4 Earnings Kicks Off

Apologies for missing the review last week, travel makes it hard! We are back and don’t have any more plans for a little while, so writing mode is fully engaged!

Anyways, 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 stock market decided to keep the heat on high for the second week of 2023. We logged decent gains on the basis that the Fed won’t have to raise rates as much as feared and that the U.S. economy may see a “soft landing” after all.

The first half of the week was a snooze-fest, as most traders were waiting for Fed Chair Powell’s speech on Tuesday, the December Consumer Price Index (CPI) on Thursday, and bank earnings reports on Friday that marked the official start to the Q4 earnings reporting season.

Fed Chair Powell gave a speech titled “Central Bank Independence” Tuesday morning. Powell’s speech made no mention of any kind of policy that would harm markets, he did, however, acknowledge that, “…restoring price stability when inflation is high can require measures that are not popular in the short term as we raise rates to slow the economy.”

The latter point notwithstanding, the S&P 500 was able to close above technical resistance at its 50-day moving average.

By Thursday’s open, the market had received the much anticipated CPI report. It was in-line with the market’s hopeful expectations that it would show continued disinflation in total CPI (from 7.1% year/year to 6.5%) and core CPI (from 6.0% year/year to 5.7%).

Those were pleasing headline numbers, but it is worth noting that services inflation, which the Fed watches closely, did not improve and rose to 7.5% year/year from 7.2% in November.

That understanding did not seem to hold back the stock or bond market. After a brief dip, the price action on Thursday generally supported the view that the Fed will pause its rate hikes sooner rather than later. In fact, the fed funds futures market now prices in a 67.0% probability of the target range for the fed funds rate peaking at 4.75-5.00% in May versus 55.2% a week ago, according to the CME FedWatch Tool.

The move up in the stock market was particularly notable considering the big move leading up to the CPI report. The S&P 500 was up 3.7% for the year entering Thursday and up 4.4% from its low of 3,802 on January 5.

Ahead of the open on Friday, the market gave back some gains and featured a series of mixed quarterly earnings from Bank of America ($BAC), JPMorgan Chase ($JPM), Wells Fargo ($WFC), and Citigroup ($C). Those stocks languished out of the gate due to higher-than-expected credit loss provisions. But true to form for 2023 so far, buyers returned and bought the weakness. Before long the bank stocks were back in positive territory and so was the broader market.

The S&P 500 moved above its 200-day moving average (3,981) on the rebound trade and closed the week a whisker shy of 4,000.

Only one of the S&P 500 sectors closed with a loss this week: consumer defensive (-0.74%) — while the heavily weighted consumer cyclical (+5.94%) and information technology (+5.58%) sectors logged the biggest gains.

The 2-yr Treasury note yield fell five basis points to 4.22% and the 10-yr note yield fell six basis points to 3.51%. The U.S. Dollar Index fell 1.6% this week to 102.18.

WTI crude oil futures made strides to the upside this week rising 8.5% to $80.06/bbl. Natural gas futures fell 4.8% to $3.23/mmbtu.

Dividend Dollars’ Opinion

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

As I mentioned in the last market update, after basing around the 3,825 level for a while, the next move was a significant one. I expected that dip buyers would step in with tax loss harvesting over, earnings season approaching, and the next rate hike still a few weeks away.

I said, “they could push the market higher for next week, or even the week after that” and that’s exactly what’s happened! The January Effect is in full swing. Last week I was correct in not expecting any major move in one direction or the other.

I predicted a short-term bounce before drawbacks are caused by possible earnings disappointments, the next rate hikes, and key economic data misses. We saw this week that two of those items are losing steam.

The CPI report showed that falling inflation is confirmed, but not overly impressive.

Then, the banks kicked off earnings. Even though they beat expectations, their results were a mixed bag. But weren’t enough to push the market lower. Many more key earnings are to come, but if the banks were any indication, this earnings season may not be the “make it or break it season”.

So far, 6% of companies in the S&P 500 have reported Q4 results with an 86% beat on EPS and 57% beat on revenue. The earnings so far show 4% growth on a year-over-year basis compared to a -4.1% estimated when Q4 ended. The season is still early, so let’s not extrapolate on these results too much. Rather, lets look at the technicals!

A lot has changed since the last time we did weekly update. The bear market low is still intact and 4,292 is the target for a new bull market to start. These two items are now -10% and +8% away from the current level.

For weeks I have been pointing out the resistance at the 50-day SMA (dark blue line) and the 100-day SMA (light blue line), the market finally broke above them. It did not take long for the next level, the 200-day SMA (white line), to come into play. Our last daily candle still encompasses the line, which is not yet a clean break. This line also converges with long-term downtrend area that began at the last all time high. The prior four failures at this level suggests it won’t be easy to break.

I think we have seen the short-term bounce that I last wrote about. This resistance we are heading into is the mother-of-all-resistance! Bargain buyers came in strong in the first two weeks of 2023, but steam may run out soon if earnings season disappoints and resistance proves heavy. I wouldn’t be surprised to see profit taking, and a red week next week, but I don’t believe we will fall under the 100 SMA now turned support.

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 Week in Review (12/30/22) – 2022 End Without a Bang

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 last week of 2022 shaped up to be a disappointing one, similar to the whole of the year. With all the major indices finishing the year off quite lower than where they started. The S&P 500 ended down 18.2%, The Nasdaq 100 ended down 33.6%, and the Dow Jones Industrials ended down 8.6% .

The Santa Clause Rally never really seemed to kick off and Q3 earnings season is now over, with the next not starting for about two more weeks.

The major indices remained under pressure from continued weakness in some of the most beaten-up names this year. Specifically, mega cap losses accelerated this week on lingering valuation concerns and presumably tax-loss selling activity by participants who bought into the seemingly invincible stocks last year.

Some of the mega cap names aren’t so “mega” any more given the massive loss in market capitalization they have suffered this year. The Vanguard Mega Cap Growth ETF $MGK fell  0.3% this week and 34.0% for the year.

The Santa Claus rally period, which is the last five trading days of the year and the first two trading sessions of the new year, has gotten off to an uneven start. It is believed to be a good sign for how the new year will start when this period produces a cumulative gain over that stretch. 2022 was a definite exception to that belief. Recall that the 2021 Santa Claus rally produced a net gain of 1.4% for the S&P 500 and yet the S&P 500 declined 5.3% this January and 5.0% in the first quarter.

It looked like Santa Claus might come charging to town following Thursday’s rally. The S&P 500 closed the session just a whisker below the 3,850 level, where it has remained since mid-December, but then backed off again in Friday’s trade.

When this year’s Santa Claus rally period began, the S&P 500 stood at 3,822.39. The S&P 500 closed Friday’s session at 3839.50 after visiting the 3,800 level.

It was also a disappointing week in the Treasury market. The 2-yr note yield rose 10 basis points to 4.42% and the 10-yr note yield rose 13 basis points to 3.88%.

The bump in yields was another headwind for equities, particularly the growth stocks, which was the case all year. The Russell 3000 Growth Index fell 0.3% this week, and 29.6% for the year, versus the Russell 3000 Value Index which rose 0.1% this week and fell 10.1% for the year.

Separately, Southwest Air $LUV was an individual story stock of note after the airline canceled thousands of flights due to the winter storm. Tesla $TSLA was another focal point, trading in roller-coaster fashion. The stock hit 108.76 at its low on Tuesday, leaving it down 69.0% for the year, but managed to rebound and hit a high of 124.48 in Friday’s trade.

Only 3 of the 11 S&P 500 sectors closed with a gain this week in thin trading conditions. The financials sector rose 0.74%, the energy sector rose 0.47%, aided by a bump in oil prices above $80.00/bbl, and the communication sector rose 0.40%. Meanwhile, the materials and consumer staples sectors were the worst performers with losses of 1.07% and 0.84%, respectively.

The economic calendar was light on major releases this week. Featured reports included the November Pending Home Sale Index, which declined 4.0%, and continuing jobless claims for the week ending December 17, which hit their highest level since February (1.710 million). Next week will see many major releases that includes the December ISM Manufacturing Index, the December Employment Situation Report, and the December ISM Non-Manufacturing Index.

Dividend Dollars’ Opinion

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

Last week I was correct in not expecting any major move in one direction or the other. The SPX ended only 6 points lower this week than where it ended last week!

It appears that the Bear Market level is being confirmed as a key level of resistance. And with all major moving averages above the that level, there is not much happening in form of support below our level.

We have been basing at this level for 8 days, which makes me think the next move in either direction will be a significant one.

With the next earnings season still two weeks away and the next rate hike still about four weeks away, the dip buyers are likely to step in again, now that the tax-loss harvesting season has ended. Most people like to buy things when they are on sale, and right now the SPX is 20% off.

Data releases on the ISM Index and Unemployment next week could be the items that have the largest impact.

January will be the month the watch for next year. Given the end of tax-loss harvesting and the fact that we are a few weeks away from key economic data releases and the next Fed hike, I think bargain buyers could push the market higher for next week, or even the week after that putting the January Effect in full swing.

The January Barometer also shows that January overall will be the month to watch. The barometer is: If the Standard & Poor’s 500 market index ends January higher than it started, the rest of the year will follow suit, and vice versa. the January Barometer has registered only 11 errors between 1950 and 2021, giving the indicator an accuracy ratio of 84.5%.

With all of that in mind, I think we see a short-term bounce before possible drawbacks caused by earnings disappointments, Fed hike, and other key economic data bring the market down to a lower level in January.

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 Strategy

Stock Market Week in Review (12/23/22) – A Weak Week to Lead Us Into The “Santa Rally”

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

Well, this was a disappointing week, and one that solidifies the absence of a Santa Clause Rally to end the year. The S&P 500, which touched 4,100 last Tuesday, was drawn to the 3,800 level all week which proved to be a key support area.

With tax loss harvesting likely to be beginning and with sentiment falling over all due to 2023 earnings estimates feeling too high, the market was lower this week. Many analysts suggest downward earnings revisions in the coming weeks and months as the economic environment shifts.

The week started on a weaker note as the market digested a weaker-than-expected NAHB Housing Market Index report for December on Monday.

Treasury markets moved on a surprise policy change from the Bank of Japan (BOJ) on Tuesday. The BOJ announced a change to its yield curve control (YCC) policy to allow the 10-yr JGB yield to move +/- 50 basis points from 0.00% versus its prior band of +/- 25 basis points as part of an effort “to improve market functioning.”

This announcement, which came in conjunction with the BOJ’s decision to leave its benchmark rate unchanged at -0.1%, also caused some upheaval for the Nikkei (-2.5%) on Tuesday and the currency market in addition to sovereign bond markets. The yen surged as much as 4.0% against the dollar.

The Market also had to deal with some disappointing housing data before Tuesday’s open, namely an 11.2% month-over-month decline in November building permits (a leading indicator) to a seasonally adjusted annual rate of 1.342 million (consensus 1.480 million).

The S&P 500 dropped below 3,800, scraping 3,795 at Tuesday’s low before buyers showed up for a small rebound effort that ultimately left the main indices with modest gains. At this point, the indices were in a short-term oversold position. At their lows Tuesday morning, the Nasdaq Composite and S&P 500 were down 9.7% and 7.5%, respectively, from their highs last week. That oversold posture triggered some speculative buying interest in a bounce.

Things really took off Wednesday when some well-received earnings reports from Dow component Nike ($NKE) and leading transport company FedEx ($FDX) triggered some decent buying interest.

The market also got some better-than-expected consumer confidence data for December, which was another support factor for the broader market. That report overshadowed a weaker than expected existing home sales report for November that was released at the same time.

Unfortunately, the rebound move soured promptly on Thursday following some disappointing earnings results and commentary from Micron ($MU) and CarMax ($KMX), a sour Leading Economic Indicators report, and some cautious-sounding remarks from influential hedge fund manager David Tepper say he is ‘leaning short’ on the stock market.

He expects the Fed and other central banks to keep tightening and for rates to remain high for a while, making it “difficult for things to go up.” His comments resonated with market participants who recalled the hugely successful “Tepper Bottom” call he made in March 2009.

The resulting retreat was broad in nature with the major indices moving noticeably lower right out of the gate, dealing as well with rate hike concerns after the third estimate for Q3 GDP showed an upward revision to 3.2% from 2.9%. The Nasdaq, S&P 500, and Dow were down 3.7%, 2.9%, and 2.4%, respectively, at Thursday’s lows.

The S&P 500 was stuck below the 3,800 level and Tuesday’s low (3,795) for most of the session before the main indices managed to regain some of their losses in the afternoon trade. There was no specific news catalyst to account for the bounce, possibly just speculative bargain hunting.

Friday’s session also started on a downbeat note after the November Personal Income and Spending Report showed no growth in real spending and PCE and core-PCE inflation rates that are still too high on a year-over-year basis (5.5% and 4.7%, respectively) for the Fed’s liking.

This report meshed with a Durable Goods Orders Report for November that was weaker than expected and was subsequently followed by economic data that showed new home sales were stronger than expected in November and that easing inflation pressures helped boost consumer sentiment in December.

Once again, the S&P 500 slipped below the 3,800 level, but soon found support as the new home sales and consumer sentiment data bolstered investor sentiment and spurred some bargain hunting interest. The major indices finished modestly higher on Friday, taking a positive first step during the Santa Claus rally period (last five trading days of the year plus the first two trading sessions of the new year).

Separately, the week concluded with the House passing the $1.7 trillion government funding bill after the Senate passed it, leaving it to be signed by the president early next week.

Overall, sector performance was mixed this week with 6 of the 11 sectors in the S&P ending green. Energy, financials, utilities, and a few others finished higher. The weakest links were consumer discretionary and technology which were dragged down by their mega cap components.

Dividend Dollars’ Opinion

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

Last week I was half-way right in expecting a near term bounce, however I was not expecting it to only last two days (Tuesday and Wednesday). We broke back under the bear market line and stayed there Thursday through Friday.

This here is the key to me. We are under all major moving averages AND the bear market line. There is significantly more resistance than there is support.

Next week, the 3,800 level will be key. We found substantial support at that level as everything under it was just a long wick. There are no major economic releases next week, which make me think we won’t see any crazy catalytic moves in one direction or the other.

We have some claims and housing reports, but that’s about all that’s worth watching, domestically that is. China and Japan have some releases that could bleed over into the US market.

With that, I will just reiterate what I said last week: “With the next earnings season on the way, Fed commentary continuing to spark volatility, and mixed economic data, the next move is anybody’s guess. I think a near-term bounce is likely with more downside to follow after the new year. Then, January will be the month to watch as history shows that it sets the market’s mood for the rest of the year.”

I think the action we saw on Tuesday and Wednesday very well could be the bounce, leaving more downside as my expectation. There are no huge economic releases next week, the Santa Rally so far has been week, therefore I think next week will be red mostly off of tax-loss harvesting.

However, if we open significantly higher in the earlier days of next week, I could see buyers coming in heavy off of the hopes of a strong Santa Rally to push us up through the end of the year. I think this scenario is less likely.

I would love to see more red next week so that I can buy more discounted stocks like I did this week. You can read about my buys in my weekly portfolio update here.

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