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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 Outlook Market Recap Market Update Stock Market

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

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

Weekly Market Review

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regards, Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

Weekly Market Review

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

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

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

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

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

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

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

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

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

   

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regards,

Dividend Dollars

Categories
Economics Market Outlook Market Recap Market Update Stock Market

Weekly Stock Market Recap & Outlook (7/7/23) – A Bumpy Start to Q3

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

Dividend Dollars’ Outlook & Opinion

Last week I was personally bullish, so that didn’t work out for me. But the bearish cases I gave you were spot on. We mentioned that markets tend to pivot at the start of a new quarter, we saw that very clearly this week. I also gave bearish targets of 4,380 and 4,300. The low of this week nearly perfectly hit the first mark at 4,385. It is hard to be spot on with these outlooks, that’s why keeping an eye on both cases is important, because one side of our outlooks tend to be scarily accurate.

This was a busy week for economic data, especially with it being a shortened holiday week as much of the market took the 4th as opportunity to have a 4 day weekend. We had a smattering of employment data figures, most of which supported the soft-landing narrative but also left rooms for concerns of additional rate hikes.

Last week, the technicals and indicators really only provided a break-out signal, but it was not clear in which direction. Monday gave us a little bit of a fake out as price action hit a new bull-market high of $4,456 and then we ultimately ended the week with just under a 1% loss. The new bull-market high has moved the -10% correction line up to $,010 and the -20% bear market line up to $3,564.

Bull/Bear markets are defined by up/down moves of 20%, at that point they are backdated to the last low/high point. Since we hit a new high on Monday, the market is up 24.6% since the start of the bull market on 10/12/22 and has lasted 264 days, both the weakest and shortest bull market to have occurred since WWII. Does it still have more in the tank?

Next week we have the CPI reading on Wednesday and PPI reading on Thursday. Same as last week, there was roughly an equal number of upgrades and downgrades on sentiment indicators. VIX OI and equity OI improved while VIX, VIX IV, and SPX OI put call ratio worsened. There’s still plenty of potential pullback catalysts on the way, but bullish momentum is also a strong counterbalance. The chart bounced perfectly at the bottom of the channel on Thursday, confirming my support in the area. I am neutral coming into next week, I’d like to see strong movement in either direction to break the red channel and then follow the trend in whichever direction is setting it for next week.

Weekly Market Review

Summary:

The shortened week started out slow for the market, as expected with the 4th pushing lots of investors to take a 4-day weekend. After the holiday there were some catalysts that encouraged investors to pull out some money after the strong start to the first half of this year.  

Geopolitical and global growth concerns were present in the early week following PMI readings that were weaker than expected for China and Europe. Later in the week, rising treasury yields were a big factor in driving stock sales following the stronger than expected ADP employment figures for June.  

The bump in rates increased valuation concerns in the market as the possibility of another Fed rate hike grew. The fed funds futures market still sees only one more hike on the horizon. The FedWatch tool shows that there is a 93% change of hike this month, followed by 24%, 34%, and 30% chance of a second hike in the following three meetings of this year.

 

Another rate hike, and potentially increased chances of a second rate hike depending on incoming data, makes it harder for stocks to compete with the risk-free rate. This creates headwinds for stocks, so we always want to keep an eye on it. Obviously it’s been on my mind since my girlfriend told me I was sleep talking about interest rates last night!  

Overall, only one sector made gains this week. Real Estate was the stand out S&P 500 performed with a +0.2% gain meanwhile Healthcare, materials, and IT were all the worst losers with losses ranging from 2.9% to 1.5%.  

Monday:

The market closed early today and marked the start of a new month, quarter, and half of the year on a slightly higher note. Volume was light but decent for a shortened day. Conviction was lacking as the market was absent many traders.  

EV makers $TSLA and $RIVN were top standouts for the day after impressing with Q2 delivery numbers. The Regional Banking ETF $KRE rose 2.3% following capital return plans announced by some banks after the stress test results.  

Data for the day included the June ISM Manufacturing Index and the Total Construction Spending report.   The June ISM Manufacturing Index fell to 46% compared to an expected 47.1% and a prior 46.9%. The sub-50% reading reflects a general contraction for manufacturing activity for the 8th straight month.  

Total Construction Spending increased 0.9% MoM compared to an expected 0.4% and prior 0.4%. Total private construction was up 1.1% MoM while total public construction rose 0.1%. There is renewed strength in new single family construction which reflects the pick up in demand for housing despite the jump in mortgage rates (a top we have discussed in the Games N Gains twitch stream).  

 Tuesday:

Happy 4th of July!

Wednesday:

The major indices all hit losses this day with several catalysts bringing traders to take some money off the table. The Services PMI reading for June from China and Europe were weaker than expected, the US had headlines that they’re looking to restrict China’s access to cloud computing, and China said foreign entities must request permission to export certain materials.  

There was also some selling in wake of the release of the FOMC Minutes for the June meeting. The minutes weren’t surprising though and the markets quickly bounced back. Ultimately, this day ended close to where the indices were trading before the minutes were dropped.  

Data for the day included only the Factory Orders. They increase 0.3% MoM compared to a 0.6% consensus and prior 0.3%. Excluding transportation, the reading fell by 0.5% MoM after a 0.6% decline in April. Shipments of manufactured goods also grew 0.3% MoM after falling 0.6% in April. This all shows new order activity continues to be week, excluding transportation.    

Thursday:

This was another losing day with a little rebound from the lows. Rising Treasury rates were a big factor in the stock retreat for the day. The 2 year note yield rose 5.01% and the 10 year not yield rose to 4.04% in response to the strong labor data and stronger than expected Non-Manufacturing ISM report. These moves caused higher probabilities and concerns of another Fed hike at the next meeting.  

Economic data for the day included the ADP jobs report, initial jobless claims, the Jolts job openings report, the trade balance report, and the ISM Non-Manufacturing index report for June.  

The ADP report showed private sector hiring increased by 497,000, a huge increase on 245,000 expectations and 267,000 prior reading. Service sectors surged with 373,000 adds. Small and medium businesses led the hiring with gains of 299,000 and 183,000. JOLTS job openings totaled 9.824M following the 10.32M from April. Initial jobless claims increase by 12,000 to 248,000, just slightly above the consensus of 245,000. Continuing claims fell by 13,000. The leading indicators from all job reports continue to come in lower than recessionary levels.

The May Trade Balance Report showed a shrinking deficit to $69B, in line with expectations and below the prior $74.4B reading. This is a move in a good direction, but not because of any overwhelming strength in exports, which were actually less than the prior month’s. The swing factor was that imports were $7.5B less than the prior month. The decrease in imports and exports shows softening global demand that we would expect to see in a global rising rate environment.    

Lastly, the ISM Non-Manufacturing Index hit 53.9%, above the expected 51.1% and prior 50.3%. This increase suggests activity in the services sector is picking up steam and comfortably places the index above the 50% contraction/expansion line. This growth in services is a trend that could cause hard-landing concerns and presumably could contribute to the Fed’s inclination of additional hikes.

Friday:

The market looked better today, however, things worsened in the afternoon when some mega-caps rolled over into the red. Gainer led losers by a 5 to 2 margin on the NYSE and a 2 to 1 margin on the Nasdaq. Small caps and value stocks showed relative strength, reflecting a shift in growth mentality.  

Data for the day included the nonfarm payrolls which increased by 209,000, compared to an expected 220,000 and a prior decrease of 110,000. Average hourly earnings increased by 0.4%. This still fits the soft-landing narrative as payroll growth slowed but still remained positive.    

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

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

Regards, Dividend Dollars

Categories
Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (6/30/23) – Q2 Ends with 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!

Dividend Dollars’ Outlook & Opinion

Last week we gave a mixed outlook for this week, saying the direction would be dependent on the big data releases. Most all data beat expectations this week and we saw the S&P 500 climb to 4,450, right next to the high I had called out if things moved in positive direction. It’s hard to feel positive about a 50/50 guess, but the target was spot on!

Like last week, there were hardly any downside surprises in the data. Core PCE came in below estimate, mostly due to lower energy prices. Initial Jobless Claims fell surprisingly low. Strong economic data seemed to help support the equity rally that began in late-May.

In the 22 versions of this that I’ve written for 3x, and almost 1 years’ worth of weekly updates for my own website, I haven’t missed too often. But my understanding of the data and forward looking guesses are not always right. Despite some indicators having negative moves last week and despite being technically overbought via the RSI we talked about a few weeks ago, the S&P 500 had another >1% gain this week.

As we wrap up this quarter with a YTD gain of over 15% on the S&P 500, its time to look at what may come. Historically, when the first half of the year ends with a gain of 10% or more, there is an 80% chance that the market ends the year higher than that level, good news for us. However, bad news is that major funds track performance on a quarterly basis which creates a tendency for markets to pivot in the opposite direction on the first day of the calendar quarter (white lines). Additionally, we can see that when the RSI extends over 70 pullbacks occur. We are at a point in time where both are happening. There is a lot working in the market’s favor next week, but this is something to be aware of.

With a new quarter starting, there are plenty of signs pointing to caution. However, continued improvement in economic data and strong bullish momentum says otherwise. A number of sentiment indicators turned bearish this week like the VIX, SPX, ETP and OI change, and the VIX OI put call ratio. However, in general, put call ratios for equities turned more bullish this week, as well as the VIX IV gap. Improvements and downgrades in these indicators are fairly equal to either side. The next interest rate hike (if we get one) is still four weeks away, the next earnings season start is 3 weeks away, and technicals wise, there is room to upside without too much undue resistance. I don’t expect a sideways market next week. I personally am leaning bullish and would like to see a push higher to the 4,480-4,500 range, however if we find ourselves in a red week 4,380 and then 4,300 would be my targets.

Weekly Market Review

Summary:

This was winning week all around with not a single loss from any of the 11 S&P 500 sectors. Growth and value spaces also moving higher. More importantly, $RSP was up 3.4% this week which was 1.4% higher than $MGK showing wide buying interest.

This week was a rollercoaster of a news week with the reported Russian coup over the weekend, encouraging economic data, central bank speak reinforcing the idea of continued tightening, a number of IPOs, the Fed’s bank stress test results, and a handful of earnings.

The feeling in the market seemed to be one of a belief that the US can avoid a recession and the Fed is nearly done raising rates. This idea generated buying interest in the market. Sectors that were relative laggards this week were the countercyclical staples, utilities, healthcare, and utilities sector. Communications was the least strong of them all, but the downgrade on $GOOG from UBS was primarily to blame for that. Real estate, energy, materials, and financials were the largest winners for the week.

Monday:

Monday was a quite day with no economic data releases of import or shocking price action. The market was in slight downtrend for most of the day, ending down nearly 0.40%.

Tuesday:

The market slightly higher this day and truly fell into a bullish stride as economic data was released. Markets had bounced back from a losing day on Monday with the Dow Jones finishing lower for the 6th straight day, the longest losing streak since September.

For economic data, the S&P CoreLogic Case-Shiller U.S. National Home Price Index (HPI) increased 0.5% in April, though prices were down 0.2% YoY, the first annual decline since April 2012. The closely watched 20-city HPI rose 0.9% for the month, but prices were down 1.7% YoY, which was better than expected. Elsewhere, the FHFA HPI was up 0.7% in April and 3.1% over the past year.

New home sales jumped 12.2% in May to an annual rate of 763,000, easily beating expectations of 675,000 & the highest level since Feb 2022. The median sales price was $416,300. Lastly, the Consumer Confidence Index rose more than expected to 109.7 in June, the highest level since Jan 2022. The report had been expected to come in at 104.0. Both the present situation and expectations index were higher.

Wednesday:

Stocks opened lower for the day as investors tuned into Fed Powell’s conference with 3 other central banks in the morning. Their comments had not had lasting effect as the market pushed for daily highs in the midday before normalizing for a slightly green close on the day.

Bank stocks rose following the annual Fed stress test that was released yesterday. The 23 biggest US banks all passed the test despite massive losses projected for the group. Fed Chair Jerome Powell signaled more restrictive policy is on the way, with the possibility of rate hikes at consecutive meetings.

MBA mortgage applications rose 0.5% last week. Purchase applications were up 2%, while refinance applications were down 2%. The report also showed that the average interest rate of a conforming 30-year mortgage fell four basis points to 6.73%, the 3rd consecutive weekly decrease.

Thursday:

The market looked much like Wednesday in that it steadily moved up, but with less prominent peaks and valleys.

For economic data, initial jobless claims unexpectedly fell to 239,000, compared to an expected increase265,000. Continuing claims were marginally lower at 1.74 million.

The third estimate of first quarter U.S. GDP was revised higher to 2.0%, up from 1.3% in the previous estimate. Consumer spending and exports were revised higher, while imports moved lower.

Friday:

Stocks opened dramatically higher for the way and were ready to cap off this quarter with a bang!

Year to date, the S&P 500 has increased 15.5%, its best first half since 2019, and the Nasdaq has increased 31%, its best first half since 1983. However, the Dow has increased by just 3.6% over the same time period.

In economic news, the fight against inflation appears to be working. The personal consumption expenditures price index increased 0.1% in May and 3.8% year over year. Stripping out food and energy, core PCE increased 0.3% for the month and 4.6% year over year. Spending slowed significantly from April to May going from 0.6% to 0.1%, respectively. Income increased to 0.4% in May, from 0.3% in April.

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

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

Regards,

Dividend Dollars

Categories
Due Diligence Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (6/16/23) – Another Upbeat 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!

Dividend Dollars’ Outlook & Opinion

Last week we called for more bullishness, under the caveat that CPI and the Fed do what we expect. And they did not disappoint. I wanted to see the S&P 500 close above 4,340 and it did by a fair margin. Funny enough, Monday’s high touched my level and then gapped well above it at the open on Tuesday. It came back down to test it on Wednesday and it proved to be a solid support line.

Despite Friday’s choppiness, this was one of the best weeks for the market in some time. 52 week highs were being handed out like goodie bags at an Oprah show with $AAPL, $AI, $DAL, $META, $NFLX, $WMT, $UBER, $NVDA, $MSFT, $ORCL, and many others hitting yearly highs.

The hawkish language that was dolled out by the FOMC on Wednesday didn’t seem to scare investors much. I don’t know if it’s a belief that corporate earnings and the general economy will be able to handle a few more hikes, or if they’re calling the bluff on the Fed’s hawkishness. Only time will tell, but the disbelief was obvious this week. Are stocks suggesting the worst is behind us or are there too many of us with FOMO buying up equities right now?

Technical-wise, the S&P 500 is continuing its streak of new 52-week highs as resistance levels seem feeble. After breaking through the firm resistance at 4,200, there has not been much standing in the way of the bulls. However, the market is running very hot with a high RSI reading of just under 77 on Thursday. The last time the RSI read higher than 77 was back in September of 2021 when it hit 82. After that RSI peak, the market experienced a 10% correction over the next three weeks. Could history repeat itself? Usually it does, but the timing is the tricky part. I am loath to call a correction, but I am trying to give you a sense of when one could over the horizon.

However, RSI aside, the chart still looks quite bullish to me. We have a little area of resistance that was generated by some slight consolidation last April, this is noted in the light red channel in the chart below. We absolutely plowed through the 0.618 level (4,312) of the Fibonacci retracement produced from the high of January 2022 to the low of October 2022. This bit of resistance could push us back down to that level or we continue higher to the next level. The market could lose some steam, making a re-test more likely. However, except for Friday, the market’s price action is not exhibiting much weakness!

Overall, this week was heavy with economic data that mostly came in with readings that supported a market move higher. However, in the last hours of the final trading day for the week, some profit taking occurred ahead of the three-day weekend. Inflation has continued to trend down, technicals are still mostly bullish, there is a healthy amount of skepticism among investors, stocks are fully valued at a forward P/E of 19 for the S&P 500, recession risk is not out of the question yet, and we appear to be nearing a reasonable consolidation period. Lots of things to consider. Its hard to time an expected consolidation move, but one seems increasingly possible. On the other hand, I still respect the bullish momentum we’ve been seeing, even though they are starting to appear stretched. Therefore, my outlook for next week is neutral. I equally could see a move higher to the next fib level just above 4,500 or a move to test the 4,300 area. Next week is light on the economic data front as long as we don’t get a jobless claims surprise. So be ready to play either side.

Weekly Market Review

Summary:

This week another bullish one for the market as the major indices hit gains. The S&P 500 had its 5th winning week in a row and closed above 4,400. Mega-caps were leading as $AAPL and $MSFT hit new all time highs. Small and mid-caps trailed them after a big run recently. The Russell 2000 had the smallest gain among the indices for the week but shows the largest gain on the month so far.

This improvement in market breadth saw the $RSP rise 2.5%. Also, all but 1 of the 11 S&P 5000 sectors made gains this week. Energy was the lone loser (-0.6%) while technology (+4.3%) and materials (+3.5%) lead.

The rally for the week picked up steam as the CPI release on Tuesday, the PPI on Wednesday, and the FOMC meeting all went the market’s way in feeling better about inflation and the economy. The FOMC voted to not change the fed funds rate. The latest dot-plot shows an increase in the median projection for the rate in 2023, meaning there may be at least two more hikes this year. The forecasts for 2024 and 2025 also saw an increase, meaning we have a higher for longer policy rate outlook.

After the minutes release, Fed Powell’s press conference made no promises for the July meeting. In spite of the hawkishness of the Fed materials, the market’s response reflects a belief that the Fed may actually pull off a soft landing and get inflation back down to 2% without too much damage. The market seemed to believe that the Fed may be done, or close to done, with raising rates.

Monday:

Monday looked positive in the beginning of the day, but really started to pick up steam in the afternoon as the S&P closed at its highest level since April 2022. The stock market kicked it into gear as rates declined after the Treasury market did a good job of absorbing the $200B worth of bills and notes, with another $101B scheduled to be sold on Tuesday.

Mega-caps lead the way with many others following as $MGK was up 1.5% and $RSP was up 0.7%. The energy sector, however, failed to perform with its -1% loss. Oil prices fell -4.6% in response to Goldman Sachs cutting its Brent Crude forecast by nearly 10%, citing higher oil supplies.

Tuesday:

Tuesday’s market continued the positivity as indices closed near their best levels of the day. The CPI report released in the morning seemed to enhance the view that the Fed will not raise rates this week and lessened expectations of a hike in July.

Again, price action seemed to show a belief that the Fed may not overtighten on their path to bring inflation back down. That belief was reflected in a more pro-cyclical trade and led to a better performance in domestic small caps and value stocks than growth stocks for the day.

Economic data for the day included the NFIB Small Business Optimism Survey and the CPI report.

The NFIB survey rose to 89.4 up from 89.0 in April. This reading was the 17th consecutive reading below the 49-year average of 98. The survey showed that the difficulty to fill jobs is still historically high, business owners are slightly slowing with raising prices, and sales increase expectations have fallen slightly.

The CPI report was up 0.1% MoM, just under expectations of 0.2%. Core CPI was up 0.4% MoM, as expected. It was driven by an increase in the shelter index and the vehicle index. On a YoY basis, the CPI is up 4% versus 4.9% in April, the smallest change in the 12 months ending March 2021. The Core CPI rose 5.3% YoY, down from 5.5% last reading. The shelter index accounted for over 60% of the total increase. The key takeaway here is that inflation rates are moving in the right direction, but core inflation is still too high for the Fed’s liking which is why future rate hike prospects are still alive.

Wednesday:

The market was in a narrow range, leading up to the FOMC decision in the afternoon and the press conference that followed. They voted unanimously to keep rates, yest stocks fell a bit with the release of their projections which showed an upward adjustment in the median rate for 2023.

The market started to climb as the press conference began. Stocks recovered as Powell said the July meeting is a “live” meeting, meaning its outcome is not predetermined. There are 4 Fed meetings left, and no rate hikes are being frontloaded. The market is making some allowance for the chance that they don’t push the rate as high as the dot plot suggests.

Economic data for the day included the weekly MBA index and the PPI.

The mortgage applications index rose 7.2% with purchase applications jumping up 8% and refinancing up 6%.

The Producer Price Index reading for final demand fell 0.3% MoM, under the -0.1% consensus, while the core PPI rose 0.2% MoM as expected. YoY the index was up 1.1% versus 2.3% last month, and the core was up 2.8% versus 3.2% last month. The key here is that wholesale inflation is trending in the right direction, which should help with decreasing future rate hike probabilities and positivity for corporate margins.

Thursday:

Thursday was strong as the market rallied on a spattering of economic data releases. The indices closed near their highs of the day.

The economic data was mixed overall, but some highlights fueled the run of the day. $CAVA’s IPO also helped to boost investor sentiment after it opened at a huge premium above is $22 IPO price.

Economic data for the day included retail sales, jobless claims, the May import and export prices, and industrial production.

Total retail sales increased 0.3% MoM, above flat expectations. Spending was flat or higher in May for nearly every category with the exception of gasoline stations and miscellaneous retailers, which shows the resilient spending capacity of consumers who continue to benefit from a strong labor market.

Initial jobless claims were flat at 262k, but above the expected 251k. Continuing claims increased by 20k to 1.775M. Even though these unemployment levels have been higher in recent weeks, they still are well below levels seen in all recessions of the past 4 decades that saw levels read higher than 350k.

May import prices fell 0.6% MoM after a 0.3% increase in April. Excluding fuel, import prices were down 0.1%. Export prices fell 1.9% MoM after a 0.1% decrease in April. Excluding agriculture products, export prices fell 1.8%. Deflation can be seen in the import prices as they are down 5.9% YoY, nonfuel import prices down 1.9% YoY, export prices down 10.1% YoY, and non-agricultural products down 10.5% YoY.

Total industrial production fell 0.2% MoM, falling short of a +0.1% expectation. The capacity utilization rate fell to 79.6% from 79.8% reading in April. The report shows that manufacturing output is still positive, helping to mitigate weakness in mining and utilities output.

Friday:

The market closed out this quad witching day on a lackluster note, with major indices making moderate losses and spending most of the session near their flat lines. Mega-caps pulled down the indices with their outsized losses.

Pleasing earnings and guidance from $ADBE and Morgan Stanley calling $NVDA its top AI pick with a raised price target continued to drive the AI fever. The fever was not enough to offset the underlying weakness in the market for the day though.

Economic data for the day was only the Consumer Sentiment Index. It came in at 63.9, above a 60.2 expectation and its 59.2 prior reading. A year ago today, the index was at 50.0. The report shows an easing inflation expectation underpinned by consumer sentiment, however, the report notes that many consumers still expect difficult economic times over the next year.

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.

Have a happy Father’s Day and enjoy your three day weekend!

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update Stock Market

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

Weekly Market Review

Summary:

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

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

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

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

Monday:

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

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

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

Tuesday:

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

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

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

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

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

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

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

Wednesday:

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

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

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

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

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

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

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

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

Thursday:

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

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

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

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

Friday:

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

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

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

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

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

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

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update

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

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Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

Weekly Market Review

Summary:

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

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

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

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

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

Monday:

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

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

Tuesday:

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

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

Wednesday:

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

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

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

Thursday:

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

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

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

Friday:

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

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

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

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

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

Regards,

Dividend Dollars