Tag: Market Outlook

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Earnings Economics Market Outlook Market Recap Market Update Stock Market

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

Weekly Market Review

Summary:

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

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

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

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

Monday:

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

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

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

Tuesday:

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

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

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

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

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

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

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

Wednesday:

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

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

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

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

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

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

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

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

Thursday:

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

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

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

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

Friday:

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

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

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

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

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

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

Regards,

Dividend Dollars

Categories
Earnings Economics Market Outlook Market Recap Market Update

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

Weekly Market Review

Summary:

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

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

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

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

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

Monday:

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

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

Tuesday:

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

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

Wednesday:

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

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

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

Thursday:

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

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

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

Friday:

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

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

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

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

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

Regards,

Dividend Dollars

    Categories
    Earnings Economics Market Recap Stock Analysis Stock Market

    Stock Market Recap & Outlook (4/14/23) – Picking Up Steam Into Earnings

    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

    Boy is this market difficult to wrap your head around. From a bullish perspective, inflation has continued to trend lower, earnings kicked off to a solid start, and consensus sentiment may be too bearish and lead to a continued “melt up” so-to-speak. On the other hand, bearish perspective is that valuations are too high, technicals show we are close to strong resistance levels, and there is still too much uncertainty surrounding global economic health, inflation, and rate movements.

    This week was heavy with economic data that contributes to everyone’s potential differences in market perspectives (all of these releases will be broken down in the recap below). We received good news on the inflation front, but bad news in soft retail sales and rising unemployment claims. The consumer sentiment report surprised with higher-than-expected inflation expectations. Q1 earnings from the big banks came in above analyst estimates, with more to come next week.

    Last week we said that this week was technically bearish but positive data and earnings report could “flip the script”. That’s exactly what we saw. Two weeks ago, we also mentioned that April tends to be a relatively bullish month. Though the first week of the month didn’t hold true, this week definitely did.

    Technicals-wise, the S&P 500 is nearing the upper end of the 3,800-4,200 range that was established in November. From a technical near-term perspective this skews favor to the bears. It is possible that the uptrend continues and breaks above the range, but this may be difficult for a number of reasons. For one, the current forward PE multiple is roughly 19, and earnings revisions aren’t shifting up to justify a higher multiple.

    We have a fair number of economic data releases next week, but none of them really stand out. All eyes will be on earnings reports which include some big names like $JNJ, $BAC, $NFLX, $WMT, $TSLA, $T, and $PG.

    As these earnings reports roll in, expect volatility. But it’s impossible to know if they’ll be positive or negative for the market. Therefore, I think the official and safe outlook for next week is volatile and neutral with an expected week ending next week around current prices, especially since upper resistance on the SPX is close. However, the bull in me really wants to see earnings surprises push the market higher to 4,200 and even above. But only time will tell.

    Weekly Market Review

    Summary:

    The stock market had a mixed but overall positive showing for the week. All major indices made gains, but modest ones on the back of continued inflation and Fed concerns.

    Early week was a slow trend up as investors awaited economic data and Q1 earnings reports from banks on Friday. Coinbase Global ($COIN) was an exception here, gaining 6.0% on Tuesday after Bitcoin breached $30,000.

    Inflation concerns came up after the Consumer Price Index (CPI) came in for March. Total CPI fell YoY, which was a welcome development, but core-CPI did not. The total Producer Price Index (PPI) and core-PPI fell in March, but the uptick in core-CPI offset some excitement about PPI disinflation.

    Also, comments from Fed officials this week indicated that the new inflation readings are not likely to convince the Fed to pause its tightening efforts just yet. Fed Governor Waller (FOMC voter) said on Friday that the Fed hasn’t made much progress on its inflation goal and that he thinks monetary policy needs to be tightened further and remain there for a while.

    The data and comments did not change forecasts for the Fed’s May FOMC meeting. According to the CME FedWatch Tool, the fed funds futures market is pricing in a 78% chance of a 25 basis points rate hike.

    Q1 earnings season kicked off on Friday with $JPM, $C, $BLK, and $PNC all finishing the day with a gain on a good report. Strength from the financial sector was not enough to carry the market on Friday, though as regional banks were weak on Friday despite gains from their larger peers.

    Still, the S&P 500 hit its best level since mid-February. Trading had noticeably light volume this week, which could be attributed to a larger wait-and-see mindset as investors await the bulk of Q1 earnings season.

    Only 4 S&P sectors closed with a loss this week — real estate (-1.35%), utilities (-1.32%), information technology (-0.28%), and consumer staples (-0.24%) — while financials (+2.78%) led the outperformers by a decent margin.

    Monday:

    The stock market looked weak at the open as the main indices fell under the weight of mega cap losses. Even at session lows, though, the broader market showed nice resilience in front of several market-moving data releases later in the week.

    The Dow Jones Industrial Average was the strongest of the day, declining just 0.4% at its low for the day, while the tech-heavy Nasdaq saw a loss of 1.3% at its low before settling the day close to flat. Monday’s best performer, however, was the small cap Russell 2000 (+1.0%).

    The main indices all improved noticeably when the mega cap stocks started to recover earlier losses. The Vanguard Mega Cap Growth ETF ($MGK) was down as much as 1.6% before closing with a 0.3% loss. This recovery effort helped the market close near its highs for the day, which had the S&P 500 above 4,100.

    There was no economic data of note for Monday.

    Tuesday:

    Tuesday continued the trend of relatively light volume, again showing resilience to selling efforts ahead of big events later in the week.

    Some of the mega cap stocks were able to climb off their session lows as the broader market settled into a steady grind higher in the afternoon. The main indices took a sharp turn lower, though, with about 30 minutes left in the session as names like Microsoft (MSFT), Apple (AAPL), and NVIDIA (NVDA) retested early lows.

    Coinbase Global (COIN) made an outsized move Tuesday after Bitcoin reached $30,000, Moderna (MRNA) dropped 3.1% following its acknowledgment that its influenza vaccine candidate did not accrue sufficient cases at the interim efficacy analysis to declare early success, and CarMax (KMX) logged a nearly 10% gain after its better than expected fiscal Q4 earnings results.

    Again, there was no economic data of note for Tuesday.

    Wednesday:

    The day started on an upbeat note as investors digested the Consumer Price Index (CPI) for March. The S&P 500 and Nasdaq logged gains of 0.6% and 0.9%, respectively, shortly after the open.

    Early gains disappeared, though, as mega cap stocks rolled over and Treasury yields also climbed.

    There was a subsequent rebound effort that took root after the S&P 500 dipped below 4,100. The market was moving cautiously forward into the release of the FOMC Minutes from the March 21-22 meeting.

    The Minutes revealed that members agreed that inflation remains too high and that the banking problems increased economic uncertainty. Still, all agreed that it was appropriate to raise the target range for the fed funds rate even though the staff economic outlook included a mild recession starting later this year given the potential economic effects of recent banking-sector developments.

    Things rolled over again in the late afternoon with mega cap stocks leading the slide.

    The selling interest was likely also driven more by valuation concerns rather than a negative reaction to the Fed forecasting a mild recession, in my opinion. The cyclical S&P 500 sectors pulled back along with the rest of the market, but still finished the day in a position of relative strength.

    Wednesday’s data included the MBA Mortgage application index and the CPI numbers.

    The weekly MBA Mortgage Applications Index rose 5.3% with purchase applications jumping 8.0% while refinance applications were flat.

    Total CPI was up 0.1% MoM on February’s increase of 0.4%, 0.3% was expected. Core-CPI, which excludes food and energy, increased 0.4%, as expected, following a 0.5% increase in February. Services inflation was up 0.3% MoM, versus up 0.5% in February, and up 7.3% YoY versus up 7.6% in February. Excluding shelter, services inflation was flat, compared to a 0.1% increase in February, and up 6.1% YoY versus up 6.9% in February. On a YoY basis, total CPI was up 5.0%, versus up 6.0% in February. That is the smallest 12-month increase since May 2021. Core-CPI was up 5.6% year-over-year, versus up 5.5% in February.

    The key takeaway from the report is the disinflation seen in March. That trend doesn’t necessarily take a rate hike at the May FOMC meeting off the table, especially with core-CPI tipping slightly higher, but it is fostering a belief that a rate hike in May could be the last hike in the Fed’s tightening cycle.

    Thursday:

    Thursday was strong and only strong. Gains from the mega cap space gave the main indices a big boost. The positive bias was partially a reaction to the pleasing economic data in the morning and there was likely some short-covering activity contributing too.

    The major indices spent most of the session in a steady climb, closing near their best levels of the day. The S&P 500 hit 4,150 at its high of the day, marking its best level since February 15.

    By the close, bonds had given back all of their post-PPI, knee-jerk gains to settle the session with losses across the curve. Notably, stocks advanced as bond yields rose from their post-PPI lows, which were set around the time the stock market opened for trading, suggesting perhaps that there was some asset reallocation within the day.

    For Thursday, we had the PPI report and Initial unemployment claims.

    The Producer Price Index for final demand declined 0.5% MoM in March compared to an expected 0.1% and following an upwardly revised 0.0% reading in February. Excluding food and energy, the index for final demand fell 0.1% MoM. YoY, the index for final demand was up 2.7% versus 4.9% in February. Excluding food and energy, the index for final demand was up 3.4% versus 4.8% in February.

    The key takeaway is that producers are seeing some welcome disinflation, aided by declines in energy prices; however, the stickiness of core CPI in March has offset some of the excitement about the improvement in the PPI data in March.

    Initial claims for the week ending April 8 increased by 11,000 to 239,000, above expectations by 3,000, and continuing claims for the week ending April 1 decreased by 13,000 to 1.810 million. The key takeaway from this report is that it reflects some softening in the labor market but not any clear-cut weakness.

    Friday:

    Friday was the big day. Trading sent many stocks lower. The main indices tried to move higher, but quickly fell below their flat lines and remained in the red through the close. Investors were digesting a slate of economic data and corporate news ahead of the open, including some pleasing Q1 earnings results from several large banks.

    $JPM, $C, $BLK, and $PNC were among the top performing stocks Friday, driving a 1.1% gain in the S&P 500 financial sector.

    While the financial sector was providing support for the broader market, mega cap losses offset much of that support and drove a lot of the index level weakness. Names like $META, $AMZN, $GOOG were able to recover their losses and finish with at least a modest gain. This coincided with the broader market rebounding from its lows of the day.

    Investors were also reacting to Fed Governor Waller’s remarks in a speech before the open that the Fed hasn’t made much progress on its inflation goal and that he thinks monetary policy needs to be tightened further and remain tight for a substantial period of time.

    Also, some added selling pressure kicked in after the preliminary Consumer Sentiment Index for April showed year-ahead inflation expectations rising to 4.6% from 3.6%.

    Economic data for Friday included import and export prices, retail sales, industrial production, and the consumer sentiment index.

    Import prices fell 0.6% MoM and were down 4.6% YoY. Excluding fuel, import prices were down 0.5% MoM and down 1.5% YoY. Export prices fell 0.3% MoM and were down 4.8% YoY. Excluding agricultural products, export prices were down 0.2% MoM and were down 5.2% YoY.

    Total retail sales fell 1% MoM in March, much lower than the expected -0.4%, and the 0.2% decline in February. Excluding autos, retail sales were down 0.8% MoM. The key takeaway is that sales declines were seen across most retail categories, reflecting weakness in consumer spending on goods that should exacerbate concerns about an economic slowdown that cuts into earnings prospects.

    Total industrial production rose 0.4% MoM in March. The capacity utilization rate jumped to 79.8%. The key takeaway from the report is that the entire gain in industrial production in March was driven by the increased output of utilities, which is to say the headline print contradicts an otherwise soft environment for manufacturing output.

    The preliminary University of Michigan Consumer Sentiment Index for April was 63.5, above the 62.7 consensus and the final reading of 62.0 for March. YoY, the index stood at 65.2. The key takeaway from the report is that short-run inflation expectations were up noticeably from the prior month, which is something that could compel the Fed to press ahead with another rate hike in May even though long-run inflation expectations remained stable.

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

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

    Regards,

    Dividend Dollars

    Categories
    Economics Market Recap Market Update Stock Market

    Stock Market Recap & Outlook (4/7/23) – A Slow Start to Q2

    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

    Be careful what you wish for was the theme of this week. The Fed has been telling us for months that labor market deterioration would be needed in order to slow inflation. This is a risky ask as consumer spending accounts for about 2/3s of the US economy, job losses significant enough to dent inflation are likely to lead to a recession.

    This week was about as choppy and directionless as we can get. This action tells me that the market is at an inflection point, one where we must decide if bad news is good news (because it might mean the end of the rate hike) or if bad news is bad news (because it might mean a recission is unavoidable0. It may be a while before we have the answer to that question.

    Last week, our indicators and thoughts pointed to moderate bullishness with high volatility. At the close of Thursday, the $VIX was $0.42 lower for the week at $18.40. Volatility ended lower, but it was not without it spikes close to $20.00 four times throughout the week. SPX ended slightly lower for the week at 4,105 compared the close last week at 4,109. I’d say the jury is out on whether the forecast was on target or not (I’m thinking not)!

    Technically, because of the lack of moves, things haven’t changed much for SPX. It is still about the long term downtrend and all of the significant SMAs. We did break above and then back under the significant 4,100 level.

    Remember last week when I said, “Historically, markets tend to switch directions at the beginning of a new quarter and April tends to be a relatively bullish month”? Well the first half of that was true! This week was a definitely a switch away from the strong upward direction we had to end March.

    Various indicators have worsened through the course of this week. SPX open interest put call ratios and the volume put call ratio of the major indexes worsened to moderately bearish levels. SPX volume put call ratio worsened to neutral levels from moderately bullish last week. Meanwhile, VIX open interest changed to moderately bullish. Overall, there was not much shifting in the indicators, but they’re just enough to lean a bit more bearish next week compared to this week.

    Additionally, the reaction to the march employment report will be felt on Monday, the CPI and PPI follow midweek, and the unofficial start of Q1 earnings season from several banks is certain to bring volatility next week.

    Next week appears to be learning bearish via the indicators and technical resistance around the 4,100. Positive data and earnings reports may flip that script.

    Weekly Market Review

    Summary:

    The stock market ended the week slightly down. The Dow Jones Industrial Average squeezed out a slim gain, thanks to money flowing into blue chips, while the major indices made losses due to renewed growth concerns.

    There was not a ton of conviction to start the week after OPEC+ surprised markets with a 1.16 million barrels per day production cut announcement. This sent oil prices on a tear, rising 6.4% this week to $80.70/bbl.

    Then, growth concerns carried the price action for the remainder of the week. Lingering slowdown concerns were stoked by a slate of weak economic data and a contention by JPMorgan Chase ($JPM) CEO Jamie Dimon in his annual shareholder letter that the regional banking crisis is not over yet and have unseen repercussions for a time.

    Many of the economic releases this week came in weaker than expected, adding to the uncertainty surrounding this week.

    With an increasing concern of slower growth, investors anticpate further cuts to earnings estimates. Cyclical sectors were the biggest losers this week while defensive-oriented sectors enjoyed nice gains.

    The industrials, consumer discretionary , and materials  sectors were the top losers while the utilities  and health care  sectors rose to the top of the leaderboard. The energy sector was another top performer this week despite its economically-sensitive status thanks to the OPEC+ announcement.

    Monday:

    The stock market kicked off this holiday-shortened week with mixed price action. There was not a lot of conviction in the market except for oil-related trades following the OPEX+ announcement.

    The main indices traded in narrow ranges Monday, with the Dow Jones Industrial Average leading throughout the session. The S&P 500 climbed to 4,127 in early action but gave back those gains and then some as it slid to 4,098 before staging an afternoon push that left it close to its high for the day at the close. Nasdaq slumped throughout the day but ended above its lows as mega cap stocks pared larger losses in the late afternoon run.

    Tesla ($TSLA) was a notable laggard from the mega cap space, falling more than 6.0% on Monday after reporting Q1 production and delivery numbers.

    Economic data for Monday had the Manufacturing PMI, ISM manufacturing index reading, and Construction Spending update.

    The March IHS Markit Manufacturing PMI fell to 49.2 from 49.3.

    The March ISM Manufacturing Index fell to 46.3% (Briefing.com consensus 47.5%) from 47.7% in February, the consensus was 47.5%. This is the lowest reading since May 2020. The line between expansion and contraction is 50.0%, so the sub-50.0% reading for March reflects a general contraction in manufacturing activity for the 5th straight month. The ISM says this level corresponds to a change of -0.9% in real GDP on an annualized basis based on the past relationship of the PMI and the overall economy.

    Total construction spending declined 0.1% MoM in February, compared to flat expectations. Total private construction was flat MoM while total public construction fell 0.2% MoM. On a YoY basis, total construction spending was up 5.2%. New single-family construction remained a weak spot, as higher interest rates and increased building costs make financing expensive at a time when concerns about a future economic slowdown/contraction are taking root.

    Tuesday:

    The Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 hit modest losses on Tuesday as the resistance to Monday’s selling efforts dissipated. Initially, the main indices all moved higher, but gains quickly faded and the market traded near its worst levels for most of the session. The S&P 500 was able to close right on top of the 4,100 level thanks to a last minute move higher.

    Banks stocks came under some added selling pressure, undercut by economic slowdown concerns that followed the day’s weaker than expected economic data and a stark warning by JPMorgan Chase (JPM) CEO Jamie Dimon’s annual letter.

    In addition to the financial sector, other cyclical sectors felt the pinch of slowdown concerns and underperformed Tuesday, while defensive areas received modest gains.

    Still, the S&P 500 held up okay Tuesday despite being overbought on a short-term basis following big gains in Q1. Losses would have been more pronounced if not for gains in a few heavily-weighted stocks.

    Additionally, Finland has joined NATO as the 31st member through a swift addition that began in response to Russia’s invasion of Ukraine. “What we see is that President Putin went to war against Ukraine with a declared aim to get less NATO,” Jens Stoltenberg, NATO Chief, told reporters. “He’s getting the exact opposite.” Following the announcement, Russia claims it will bolster their border defenses.

    As for economic data, we received the Factory orders report and the JOLTS job openings report.

    Factory orders fell 0.7% MoM in February, compared to an expected 0.5% fall. This follows a downwardly revised 2.1% decline in January. Shipments of manufactured goods fell 0.5% MoM after increasing 0.3% in January. This report is backward looking, yet it fits the understanding that manufacturing conditions have weakened, evidenced by the more current March ISM Manufacturing Index which was lackluster on Monday.

    The JOLTS report showed that job openings totaled 9.931 million in February following a downwardly revised count of 10.563 million in January.This was the first reading below 10 million since May 2021.

    Wednesday:

    The stock market had a weak showing Wednesday. Blue chip names continued to get bought while more economically-sensitive sectors logged decent losses following another batch of weak economic data Wednesday morning.

    the ADP Employment Change for March was weaker than expected, the February trade deficit widened more than, and the March ISM Non-Manufacturing Index was weaker than expected.

    Buying interest for Treasuries picked up following the data releases. Stocks didn’t respond positively to the drop in market rates due to a sense that a weaker economy will translate into further cuts to earnings estimates.

    The main indices spent most of the morning in a slow grind lower, but climbed above their worst levels of the day by close. Nasdaq fared the worse while the Dow Jones Industrial Average squeezed out a slim gain, benefitting from blue chip favoritism, with big wins by $UNH and $JNJ for the day.

    Shares of Johnson & Johnson moved on news that its subsidiary LTL Management re-filed for voluntary Chapter 11 bankruptcy protection to resolve claims from cosmetic talc litigation and will pay an $8.9 billion settlement, while UnitedHealth surged on an upgrade to Strong Buy from Raymond James.

    Data for Wednesday included the ADP employment report, the February Trade Balance Report, the IHS Services PMI, and the ISM non-manufacturing index.

    The ADP Employment Change Report for March showed private sector employment increasing by 145,000 compared to a 205,000 expectation. Interestingly, Services Hiring surrounding financial activities and business services fell the most this reading. Weak pockets included manufacturing (-30,000), financial activities (-51,000), professional/business services (-46,000), and information (-7,000).

    The February Trade Balance Report showed a growing trade deficit to $70.5 billion from a downwardly revised $68.7 billion in January. Exports were $6.9 billion less than January exports and imports were $5.0 billion less than January imports. The decline in both exports and imports is reflective of a slowdown in global trade activity.

    The March IHS Markit Services PMI fell to 52.6 in the final reading from 53.8. The ISM Non-Manufacturing Index for March dropped to 51.2% from 55.1% in February. Again, line between expansion and contraction is 50.0%, so the March reading reflects continued growth in the services sector, but at a slower pace than the prior month. Activity in our economy’s largest sector is slowing noticeably with a cooling off in the new orders growth rate. The slowdown in activity and improved supply chain dynamics, though, have helped temper the pace of price increases for services.

    Thursday:

    The last day of this holiday-shortened week started on a softer note as investors digested another weak economic release. Things improved considerably around mid-morning thanks to some mega cap stocks staging a strong recovery from their lows.

    The main indices all closed near their best levels on Thursday, but on below-average volume. Despite Thursday’s gains, growth concerns that drove price action in recent sessions did not fade as seen by the underperformance of economically-sensitive sectors.

    The energy (-1.5%), materials (-0.2%), and industrials (-0.03%) sectors were the lone laggards to close in the red. On the flip side, the communication services (+1.7%) and information technology (+0.7%) sectors were among the best performers, thanks to gains in their respective mega caps. Other notable outperformers were the utilities (+0.7%) and real estate (+0.7%) sectors.

    Economic data for the day was primarily the weekly initial claims reading.

    Claims came in at 228K and the last reading was revised to 246K from 198K. Weekly Continuing Claims also saw a slight increase to 1.823 million from the upwardly revised 1.817 million in the last reading. The report featured a revision to the seasonal adjustment factor, which resulted in big upward moves to figures from recent weeks. This is a big miss as far as these reports are concerned. That said, the higher level of claims will invite some questions about the strength of the labor market after last week’s release of the Job Openings and Labor Turnover survey for February showed a big drop in openings.

    Friday:

    Happy Good Friday yall! Enjoy your weekend and happy holidays!

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

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

    Regards,

    Dividend Dollars

    Categories
    Economics Market Recap Market Update Stock Market

    Stock Market Recap & Outlook (3/31/23) – Q1 2023 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

    I’m switching it up this week and putting the outlook first as I believe the outlook content is more pertinent for the following weeks than a recap of historical information. The best information should always be at the top, right?!

    Anyways, this was a light week for economic data. The most important figure, in my opinion, was the core PCE. This is the Fed’s preferred inflation gauge. While the reading’s MoM increase was exactly on target, the YoY level was +4.6%, just below the estimate and prior month’s reading at +4.7%. Like the other inflation metrics, this figure has been falling steadily for several months now. The takeaway here is that prices are not falling, however, they are rising at a slower rate. This is good news.

    When this quarter began, you could probably count the number of bullish analysts on one hand. Objectively, it was not a great quarter, however, following a 19.4% decline in 2022, total rate hikes of 50 basis points, two significant bank failures and touching negative territory two weeks ago to finish the quarter up over 6% is wild.

    With this rally to end the month, SPX is now higher than the long-term downtrend by the largest margin to date. SPX finished the week well above all significant moving averages, and inched above the 4,100 technical resistance level with some fast moves at the end of Friday.

    Historically, markets tend to switch directions at the beginning of a new quarter and April tends to be a relatively bullish month. However, nearly missing a major banking crisis is still in the back of the market’s mind and the start of a potentially weak Q1 earnings season around the corner, it’s too early to tell if history will repeat itself.

    Various indicators have improved and worsened through the course of this week. VIX and SPX open interest put call ratios improved into neutral territory, VIX and SPX open interest changes improved to moderately bullish levels. Meanwhile, major ETF and equity changes in open interest, and VIX implied volatility gaps have worsened to moderately bullish, neutral, and neutral territory, respectively.

    In general, things are looking moderately bullish. There are a few more upgrades than downgrades this week, but some items contradict others, indicating increased volatility. With the next potential rate hike will not arrive till May, earnings season kicks off in a few weeks, and a dodged financial crisis looming over shoulders, traders may look to continue the buying spree, but not without some volatility.

    Weekly Market Review

    Summary:

    Q1 2023 ended with a bang. The S&P 500 spent most of the week above its 50-day moving average and the 4,100 level by Friday’s close. The indices stuck to a narrow range in the first half of the week, though, as investors continued to digest all the bank happenings of prior weeks.

    Participants reacted favorably to news that First Citizens Bancshares ($FCNCA) will acquire some of Silicon Valley Bank’s and that authorities are considering expanding an emergency lending facility for banks. Bank stocks remained under pressure though. FDIC Chairman Michael Barr told the Senate Banking Committee that he sees needing to increase capital and liquidity standards for firms over $100 billion.

    Overall, the S&P 500 financial sector rose 3.7% this week, but it declined 6.1% in Q1.

    Some of the gains this week were pushed by strong leadership from semiconductor stocks. The iShares Semiconductor Index ($SOXX) rose 3.17% this week and surged 25.6% this quarter. The market liked Micron’s ($MU) earnings report, but prices fell back down on Friday due to reports that Chinese regulators are reviewing their products for security.

    The rally charged ahead on Friday from relatively pleasing inflation data. The PCE Price Index slowed to 5.0% YoY in February from 5.3% in January. The core-PCE Price Index hit 4.6% from 4.7%. The direction of these moves is good news, but the pace of decreases could improve.

    The U.S. Dollar Index fell 0.6% to 102.52. On that note, China and Brazil agreed to trade in their own currencies instead of the USD.

    All 11 S&P 500 sectors ended the week green. Energy (+6.3%), consumer discretionary (+5.6%), and real estate (+5.2%) lead while communication services (+2.3%) and health care (+1.7%) trailed.

    Monday:

    The market started the day mixed. Sentiment around the bank sector shifted after investors learned that First Citizens Bancshares ($FCNCA) will acquire $72 bln of Silicon Valley Bank’s assets at a discount of $16.50 bln.

    Additionally, a Bloomberg report indicated that US authorities are considering expanding an emergency lending facility for banks in ways that would give First Republic Bank ($FRC) more time to improve its balance sheet.

    Despite the banking improvements, major indices closed mixed with NASDAQ trailing. They were feeling the weight of lagging mega cap stocks, which helped drive a 0.7% loss in the Vanguard Mega Cap Growth ETF ($MGK) versus a 0.7% gain in the Invesco S&P 500 Equal Weight ETF ($RSP).

    There was no economic data of note on Monday.

    Tuesday:

    Markets were in relatively tight range on below average volume. Indices closed red after climbing above their worst levels in the afternoon. The Nasdaq trailed its peers again Tuesday, weighed down by lagging mega cap stocks.

    Morning money flows looked somewhat similar to Monday’s with banks leading. Sentiment seemed to shift around the time that FDIC Chairman Michael Barr testified at Senate Banking Committee, suggesting more regulation.

    Economic data for Tuesday contained the international trade in goods, the FHFA housing price index, and the consumer confidence reading.

    The advanced report for international trade in goods showed a $91.6 billion deficit in February versus a $91.1 billion deficit in January. Retail inventories reflected a 0.8% build following a 0.1% from the prior. Wholesale inventories showed a 0.2% build after a 0.5% decline in January.

    The FHFA Housing Price Index rose 0.2% in January following a 0.1% drop in December.

    The Conference Board’s Consumer Confidence Index for March hit 104.2 above the expected 101.5 versus the 103.4 reading for February. Last year, the index was at 107.6.

    The key here is that this survey included the period included the SVB fiasco and still help up well. However, the Expectations Index remained below 80 level for the 12th month out of the last 13, which serves as a concerning signal about future growth.

    Wednesday:

    Wednesday was a positive day following the 2-day Congressional hearing on the SVB bank failure. For most of the day, the main indices chopped around a range, albeit sporting nice gains. A late afternoon push higher had the main indices close near their highs of the day, leaving the S&P 500 above its 50-day moving average.

    Nasdaq led thanks to strong mega caps and chipmakers. Micron’s ($MU) quarterly results pleased, and many semi stocks traded up with it.

    Semi strength helped drive a 2.1% gain in the S&P 500 information technology sector, which closed near the top of the leaderboard of sectors.

    Economic data for Wednesday included the MBA mortgage index and the pending home sales report.

    The weekly MBA Mortgage Applications Index rose 2.9% with purchase application jumping 2.0% (-35% YoY) with refinancing applications rising 5.0% (-61% YoY). Improvements are being made, activity is still at historical lows.

    Pending home sales rose 0.8% in February versus an expected 2.3% drop. This is coming off of the 8.1% increase from January.

    Thursday:

    At first, the main indices all logged decent gains led by the Nasdaq thanks to relative strength from chipmakers and mega cap stocks.

    This faded and the main indices slowly fell, hitting their session lows around midday. The downturn was attributed to renewed selling pressure in bank stocks, indicating that concerns about additional fallout remain in play. The S&P 500 financial sector (-0.3%) was the worst performer for the day.

    After the slump, the main indices bounced and closed near highs of the day. The S&P 500 was able to extend even higher above its 50-day moving average.

    Economic data for Thursday included the initial jobless claims report and the Q4 2022 GDP estimate.

    Initial jobless claims for the week ending March 25 rose 7,000 to 198,000 while continuing jobless claims for the week ending March 18 rose 4,000 to 1.689 million.

    The key takeaway from the report is that claims remain at a stable level near the 200,000 mark, suggesting little recent stress in the labor market.

    The third estimate for Q4 GDP showed a small downward revision to 2.6% from 2.7% reported in the second estimate. The drop was due decreases to exports and consumer spending. The personal consumption expenditures index was flat at 3.7% while the core-PCE Price Index was revised up to 4.4% from 4.3%. The GDP Price Deflator was left flat at 3.9%.

    The key takeaway from the report is that it continues to show decent growth while inflation remains above the 2% target, which the Fed could use as an argument for additional rate hikes.

    Friday:

    The market ended Q1 with great gains. The indices moved up right out of the gate and spent most of the day trending higher. A sharp jump higher in the late afternoon had the S&P 500 close above the 4,100 level.

    The run followed some pleasing inflation and consumer sentiment data in the morning.

    Strength from the mega cap space pushed index levels high on Friday and throughout the quarter in genera. The Vanguard Mega Cap Growth ETF ($MGK) rose 1.8% versus a 1.5% gain in the Invesco S&P 500 Equal Weight ETF ($RSP) and a 1.4% gain in the market-cap weighted S&P 500. $MGK rose 18.9% this quarter versus a 2.4% gain in the $RSP.

    Friday’s economic data included the PCE reading and the Michigan Consumer Sentiment Survey.

    February Personal Income increased 0.3% while spending only increased 0.2%. February PCE Prices and Core PCE prices rose 0.3% with core PCE Prices.

    The key takeaway from the report is that it only showed a slight deceleration in the YoY PCE and core-PCE price indices. Though things are moving in the right direction, one can argue the Fed still has room to raise rates.

    The March Univ. of Michigan Consumer Sentiment hit 62, down from 63.4 in the prior.

    The key here is similar to the other reading we saw, sentiment was relatively strong considering the SVB situation occurred during the survey period.

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

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

    Regards,

    Dividend Dollars

    Categories
    Earnings Economics Market Recap Stock Market

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

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

    Weekly Market Review

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

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

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

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

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

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

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

    Below are summaries of daily price action throughout the week:

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

    Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

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

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

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

    Regards,

    Dividend Dollars

    Categories
    Earnings Economics Market Recap Market Update Stock Market

    Stock Market Recap & Outlook (2/17/23) – Continued Earnings and Mixed Week

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

    Weekly Market Review

    The major indices ended down this week for the second week in a row, first time in 2023. Instability in the market was driven by reactions to economic releases and Fed comments throughout the week.

    MoM inflation data in the January Consumer Price Index (CPI) was not pleasing, but the report showed continued deceleration on a YoY basis. Services inflation, the section that the Fed seems to care about the most, was the exception with a jump to 7.2% YoY from 7.0% in December.

    Then a stronger than expected January retail sales report, higher-than-expected producer price data for January, and another remarkably low level of weekly initial jobless claims were released in the following days.

    The positive economic news paired with accelerating services inflation, fueled concerns about the possibility of the Fed raising rates more and keeping them higher for longer than previously expected.

    Fed comments this week seemed to corroborate those concerns. Cleveland Fed President Mester said she advocated for a 50-basis point rate hike at the last meeting,  St. Louis Fed President Bullard shared the same sentiment, and Fed Governor Bowman said that hikes are needed until “a lot more progress” has been made on inflation.

    5 of the 11 S&P 500 sectors made gains week led by consumer discretionary (+1.6%) and utilities (+1.1%). The energy sector (-6.3%) was the worst performer by a long shot with falling oil prices.

    Below are breakdowns of daily action for the week.

    Monday:

    • A quick dip right out of the gate had the S&P 500 slip below the 4,100 level before buyers stepped in and a rally effort took root.
    • Mega caps were driver of index gains. Meta Platforms ($META) and Microsoft ($MSFT) each rose more than 3.0% on Monday with no specific catalysts.
    • The NY Fed’s Survey of Consumer Expectations showed that inflation expectations are stable, but household income growth expectations have dropped.
      • “Median inflation expectations remained unchanged at the one-year-ahead horizon, decreased by 0.2 percentage point at the three-year-ahead horizon, and increased by 0.1 percentage point at the five-year-ahead horizon, to 5.0%, 2.7% and 2.5%, respectively.”Disagreement on these figures decreased slightly YoY
      • The median expected growth in household income dropped to 3.3%. This is the largest one-month drop in the 10-year history of the series and is the first drop since last September.

    Tuesday:

    • Tuesday’s trade was mixed as investors digested the January Consumer Price Index (CPI) released in early hours.
    • Total CPI increased 0.5% MoM (in line with consensus) and is shown in the graph below. Core-CPI increased 0.4% MoM (in line with consensus).
    • On a YoY basis, total CPI was up 6.4% (the smallest 12-month increase since October 2021) and core-CPI was up 5.6% (the smallest 12-month increase since December 2021). The YoY levels were not as low as expected AND services inflation hit 7.2% YoY from 7.0% last month.
    • The key CPI takeaway is that there has been a clear deceleration from peak inflation; however, the inflation rates are nowhere near low enough for the Fed to even think about cutting rates this year.
    • The market moved higher shortly after the open. The early gains faded, and the S&P 500 briefly slipped below the 4,100 level. There was a bounce late day and closed the session above intraday lows. 
    • Treasury yields seemed to have a more concrete reaction to the CPI data as yields jumped and closed higher.

    Wednesday:

    • Ahead of Wednesday’s open was the retail report, which reflected continued strength in the economy, but left the market concerned that it boosts the likelihood of higher rates. Total sales in January were up 3.0% MoM (consensus 1.7%) and sales, excluding autos, up 2.3% ( consensus 0.8%).
      • The key takeaway from the report is that consumers were spending freely on goods in January despite inflation pressure; in fact, every single sales category showed a MoM increase, led by a 7.2% surge in sales at food services and drinking places.
    • The January Industrial Production came in flat (consensus 0.5%) and Capacity Utilization came in  78.3% (consensus 79.1%).
      • The soft reading for January can be attributed entirely to a drop in utility output. Otherwise, there was some strength in mining and manufacturing output, the latter of which saw advances in durable, nondurable, and other manufacturing activity.
    • Equities started down, but true to 2023 form, investors stepped in to buy the early weakness. The main indices all closed the session at or near their best levels of the day.
    • High-beta stocks, uplifted by the positive earnings news and guidance from the likes of Airbnb ($ABNB), Roblox ($RBLX), and Analog Devices ($ADI), helped Wednesday’s gains.

    Thursday:

    • Thursday was down in the start and the finish. The negative bias was brought on by the higher-than-expected Producer Price Index (PPI) number for January and another low level of weekly initial jobless claims, which fueled concerns that the Fed will not pause its rate hikes in the near future.
    • January PPI came in at 0.7% shown below (consensus 0.4%) and Core PPI at 0.5% (consensus 0.3%).
      • The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis and causes concerns about inflation pressures persisting at higher levels for longer than expected.
    • Weekly Initial Claims shown below came in at 194K (consensus 203K) and Continuing Claims at 1.696 million
      • The persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance to cut workforces, which will continue to drive worries at the Fed about tight labor market conditions feeding into stickier wage-based inflation pressures as reflected in high service readings.
    • The market recovery mid-day coincided with buyers stepping in when the S&P 500 breached the 4,100 level, along with Treasury yields backing down from their post-data release highs.
    • There was a steep reversal in the last hour that had the major indices close the session near their worst levels of the day, which took the S&P 500 below 4,100 again.
    • The late afternoon plunge was precipitated by Fed speak we previously mentioned (except for Mester, who spoke prior to the plunge).

    Friday:

    • The stock market opened weak continuing Thursday’s downside momentum.
    • Treasury yields began to settle and stock sentiment shifted slightly higher.
    • Ultimately, the indices closed the session near their best levels of the day even though some mega cap names were not following.

    Dividend Dollars’ Outlook & Opinion

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

    This week was another week of consolidation and modest losses and matched perfectly with the “technicals suggest a flat or slightly bearish week ahead” call from last week’s report. This is the second week in a row of this since I called for a slowdown in the market outlook from 2/3/23.

    We had two key inflation reports with the CPI and PPI, both came in well above their estimates causing a fair amount of volatility. One flaw from this report last week was that I did not touch on the coming PPI report. Historically, the PPI tends to not move the market as much as the CPI, however the bigger miss on PPI proved otherwise this week.

    As you can see in the chart below, while still quite historically high, the YoY PPI (white) and CPI (blue) peaked in June of last year. They continue to trend lower.

    Earnings reports this week had 59 reports of the S&P 500 companies, putting us 81% of the way through earnings season. 41 of the 59 this week beat EPS expectations, below so far are the aggregate beat rates this quarter compared to prior quarters. These figures are tracked using MarketBeat.

    Now moving on to technicals. Only three weeks after the SPX broke above the long-term downtrend (red channel), broke above resistance at 4,100 (top green line), and hit a golden cross (white arrow) and the SPX has struggled to hold the support line at 4,100. The first half of the week looked decent, but the last two days did not. Ending the week under that level and establishing a new low on 2/17 compared to the last low on 2/10 looks like a technical breakdown. SPX may be trending in the down direction in the near term.

    Other metrics have shifted into bearish territory since last week. SPX OI changes grew more this last week on the put side which is moderately bearish. ETF OI changes were slightly more on the put side, but not enough to make it bearish, I consider this to be neutral. The VIX open interest put/call ratio is down almost 10% this week, this movement follows the VIX index and implies that VIX is likely to go higher moderately in the near term. This is slightly bearish. SPXOICPR saw a similar move.

    Overall, metrics like the above, failure of near-term technical support, hawkish Fed comments, a concluding earnings season, a five week wait till the next FOMC meeting, and mixed economic data all make the market look fairly mixed or slightly bearish in the near-term. Next week is light on the economic data front except for Core PCE (the Fed’s preferred inflation gauge) out on Friday. With a holiday on Monday and an apparent waiting period till the big Core PCE report on Friday, I’m anticipating a choppy week till end of week with Core PCE determining the final move.

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

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

    Regards,

    Dividend Dollars

    Categories
    Economics Market Recap Market Update Stock Market

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

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

    Weekly Market Review

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

    Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

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

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

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

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

    Regards,

    Dividend Dollars

    Categories
    Earnings Economics Market Recap Market Update Resources Stock Market

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

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

    Weekly Market Review

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     

    Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

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

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

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

    Regards,

    Dividend Dollars

    Categories
    Earnings Economics Market Recap Market Update Stock Market

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

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

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

    Weekly Review

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

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

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

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

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

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

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

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

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

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

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

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

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

    Dividend Dollars’ Opinion

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

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

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

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

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

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

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

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

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

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

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

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

    Regards,

    Dividend Dollars