Tag: Stocks Week In Review

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Economics Market Outlook Market Recap Market Update

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

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

Weekly Market Review

Monday:

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

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

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

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

There was no economic data of note for Monday.

Tuesday:

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

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

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

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

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

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

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

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

Wednesday:

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

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

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

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

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

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

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

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

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

Thursday:

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

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

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

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

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

Friday:

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

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

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

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

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

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

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

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

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

Regards,

Dividend Dollars

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Earnings Economics Market Outlook Market Recap Market Update Stock Market

Stock Market Recap & Outlook (8/25/23) – Is The Market Shaking Off This Correction?

FILE - In this Dec. 1, 2020 file photo, Federal Reserve Chair Jerome Powell listens during a Senate Banking Committee hearing on Capitol Hill in Washington. Federal Reserve officials were convinced last month that the U.S. economy and job growth had slowed as coronavirus cases surged across the country. They noted that the economy's outlook is heavily dependent on the course of the virus. (Al Drago/The New York Times via AP, Pool)

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

Dividend Dollars’ Outlook & Opinion

Last week we leaned moderately bearish, which was a miss as $SPX currently sits at +0.82% for the week. The market neared the levels I was eyeing but didn’t fully get there. The chop up and down gave us a little bit a relief from the market correction that has been occurring for the whole month of august.

This was a light on the data front. New home sales and jobless claims came in better than expected while existing home sales, goods orders, and consumer sentiment came in lower than expected. Homebuilders are continuing to benefit from the strong demand for new home sales as existing home sales are stifled by this challenging resale market. Many sellers are unwilling to sell because they don’t want to lower their price, while buyers are unwilling to buy because prices and rates are multi-decade highs. Both sides seem to be waiting for rates to come down, though it’s uncertain when that will happen.

Interest rates this week moved higher a bit as the 10-year Treasury moved from 4.29% to a mid-week peak at 4.36%. As of this writing, it settled lower than the former at 4.23%. On Friday morning, Powell gave his speech at the Jackson Hole symposium where he said that it is the Fed’s job to bring inflation down to their 2% goal, which they are committed to. Although inflation has moved down and is very much a welcome relief, it is still too high, which suggests more rate hikes could be considered. There is a cumulative probability, per the CME FedWatch tool, of 63% chance of a hike within the next two meetings.

From a technical standpoint, the key levels we discussed last week are mostly still intact. Longer term resistance at 4,600 is obviously in play. Shorter term resistance around 4,460 was strong this week, we rejected down hard from that level on Thursday. That level also coincides closely with the 50-day SMA. We will need big strength from buyers to get back above that level before we hit new highs. Below here is the 0.618 fib level and 100-day SMA right around 4,310-4,320, this is the next level of support if we go there.

Next week we have home price, consumer confidence, and jolts job data on Tuesday, ADP employment, Q2 GDP, and pending home sales data on Wednesday, jobless claims and PCE on Thursday, and the monthly employment situation, construction spending, and ISM manufacturing index data on Friday.

Consumer sentiment indicators mostly improved this week. VIX open interest change, SPX open interest change, equity open interest change, VIX open interest put call ratio, and SPX open interest put call ratio all moved into more bullish readings. The Cboe VIX volume put call ratio and VIX futures moved into more bearish readings.

Last week, investors seemed to get a little too bearish in the near-term. Based on historical seasonality, which has a decent track record, that made the market ripe for a short-term bounce that we saw in the first half of this week. With a larger number of upgrades in the sentiment indicators than downgrades, an outlook of neutral to moderately bullish is what I am expecting next week.

Weekly Market Review

Monday: Stocks had a mixed showing in a low volume session where buy-the-dip action in the mega-caps led to the outperformance of the $QQQ and helped limit losses elsewhere. The major indices had been drifting lower in the early hours before bouncing off their lows with no specific catalyst and closing near their highs for the day.  

Treasury yields, which had been rising and keeping pressure on stocks, started to pullback from their highs around the same time that the stock market hit its lows for the day. The 2-yr note yield settled 8 basis points higher at 4.99%. The 10-yr note yield rose 9 basis points to 4.34%, which is its highest level since 2007. The 30-yr bond yield rose 8 basis points to 4.46%, hitting its highest level since 2011.  

Tesla ($TSLA) and NVIDIA ($NVDA) were top performers from the mega-cap space, up 7.3% and 8.5%, respectively. $NVDA, which reported earnings after the close on Wednesday, traded up after HSBC raised its price target to $780 from $600.  

Some anxiety for Fed Chair Powell’s speech Friday at the Jackson Hole Symposium also contributed to the weakness in the Treasury market today after a Wall Street Journal article by Nick Timiraos discussed why the neutral rate may need to be higher.  

There was no economic data of note today.  

Tuesday: Stocks had a mixed showing in another low volume session that pivoted on Treasury movements. Relative strength from the mega cap space had been driving gains in the morning. The S&P 500 had been trading above 4,400 before slipping lower and then failing on retests. The indices ultimately closed  near their worst levels of the day.  

Weak bank stocks were a notable weight for the broader market after S&P downgraded the credit ratings of multiple banks on concerns of funding risks from rising rates and weaker profitability. Additionally, retailer Macy’s ($M) talked about weakening consumer credit conditions in its business, and that acknowledgment was another weight on the banks.  

Macy’s was down ~14%  following its earnings report and Dick’s Sporting Goods ($DKS) was another big loser after reporting earnings, down ~24%. Dick’s came up well shy of earnings estimates and attributed its disappointing profits and guidance to inventory shrink (i.e. theft). Lowe’s ($LOW) went against the grain, though, and posted a nice ~3% gain after its quarterly report.  

Homebuilders outperformed the broader market, boosted in part by an existing home sales report for July that continued to show a lean supply of homes for sale. The S&P 500 financials sector (-0.8%) saw the largest sector decline due to its weak bank components. The real estate sector (+0.3%), meanwhile, led the outperformers.  

Treasury yields fell overnight before nudging higher after the open. Yields ultimately settled below their highs of the day. The 2-yr note yield note rose 5 basis points to 5.04% and the 10-yr note yield fell 1 basis point to 4.33%.

Economic data for the day included only the existing home sales report for July. Existing home sales fell 2.2% MoM to a seasonally adjusted annual rate of 4.07 million from an unrevised 4.16 million in June. This was also below the estimated reading of 4.15 million. Sales were down 16.6% from the same period a year ago.  

The key takeaway from the report is that the inventory of existing homes for sale remains tight and affordability continues to be impacted by rising prices and higher mortgage rates, all of which is also acting as moving deterrents for existing homeowners.    

Wednesday: Stocks had a strong showing, supported by a drop in rates and strong mega-caps. The indices all closed with gains ranging from 0.5% to 1.6%, although volume was still on the lighter side. Today’s upside moves brought the S&P 500 back above 4,400, which acted as an area of resistance yesterday.  

Market rates started to move lower overnight in response to a batch of soft August PMI data out of Europe. Treasuries extended their rally after the release of softening Manufacturing and Services PMI readings for the US. The 2-yr note yield fell 11 basis points to 4.93% and the 10-yr note yield fell 13 basis points to 4.20%.  

The market reflected fairly broad buying interest under the index surface. Advancers outpaced decliners by a 7-to-2 margin at the NYSE and a 2-to-1 margin at the Nasdaq. 10 of the 11 S&P 500 sectors logged a gain led by information technology (+1.9%), which was boosted by its mega cap components. The energy sector (-0.3%) was the lone holdout in negative territory by the close.  

Economic data for the day included the new residential home sales report, the S&P Global Manufacturing PMI and Services PMI, and the MBA mortgage application index.  

The weekly MBA Mortgage Applications Index dropped -4.2%, down from the prior -0.8%. The refinance index dropped -3%. The MBA’s chief economist stated that “The ARM share of applications increased to 7.6Z%, the highest level in five months, and the number of ARM applications picked up by 4% last week.” It appears that some home buyers are willing to accept interest rate risk after the initial fixed period, indicating that buyers are expecting rate drops in the medium term.  

The preliminary August S&P Global US Manufacturing PMI reading came in at 47.0, down from the prior 49.0. The preliminary S&P Global US Services PMI came in at 51.0, down from the prior 52.3. The composite reading hit 50.4, a 6-month low and down from the prior 52.0. This latest reading signaled the weakest output since February as persistent challenges in manufacturing demand were accompanied with slower growth in the services sector.    

July New Home Sales came in at 714K, beating the expected 701k and prior 648k. The key takeaway from the report is that new home sales activity, which is measured on signed contracts, was driven by sales of more moderately priced homes as higher building costs crimped the supply of lower-priced homes while higher mortgage rates contributed to affordability pressures across the spectrum.  

Thursday: The indices closed with sizable losses on the heels of NVIDIA’s blowout earnings report that was filled with much better than expected Q3 guidance and a new $25 billion share buyback plan. Things looked different at the open, though, with many stocks building on yesterday’s gains. Mega-caps stocks rolled over quickly and never regained their opening momentum. Ultimately, the indices closed near their lows of the day.  

The disappointing price action after NVIDIA’s report likely caught many participants by surprise and became its own downside catalyst, which increased selling interest. Weak semiconductor stocks were another weight on the broader, falling prone to a sell-the-news reaction.  

Other notable laggards included Dow component Boeing ($BA) which said a new flaw found in the 737 MAX will slow deliveries in the near term, T-Mobile ($TM), which said it is going to cut approximately 7% of its staff, and Dollar Tree Stores ($DLTR) which disappointed with its Q3 outlook.  

Treasury yields settled slightly higher, keeping pressure on stocks, following another encouraging initial jobless claims report. The 2-yr note yield rose 8 basis points to 5.01% and the 10-yr note yield rose 4 basis points to 4.24%.  

Economic data for today included the initial jobless claims report and durable goods orders.  

Initial jobless claims decreased by 10,000 to 230,000, under the expected 240,000, while continuing jobless claims decreased by 9,000 to 1.702 million. The leading indicator of initial claims is still leading the market to believe that the labor market remains tight, which is something that won’t escape the Fed’s eye.    

Durable goods orders fell 5.2% MoM in July to $285.9B, below the expected -4%. Excluding transportation, durable goods orders increased 0.5% MoM to $187.2B. The key takeaway from the report, other than July’s weakness was driven predominately by transportation, was that business spending occurred at a moderate pace, evidenced by the 0.1% increase in new orders for nondefense capital goods excluding aircraft.  

Friday: The stock market finished the day in an upbeat manner that saw the indices settle near their best levels of the day, despite the low volume. The gains were put into question shortly after Fed Chair Powell gave his much anticipated speech at the Jackson Hole Symposium. There were some efforts to spin that speech as being more hawkish than expected as the market retreated into negative territory, yet the speech didn’t contain any surprising revelations.  

Powell stuck by the Fed’s 2% inflation target and reiterated that the process of getting inflation back down to 2% still has a long way to go. He acknowledged that the Fed would raise rates again if it is appropriate. These are all things he said following the last FOMC meeting. Unsurprisingly, Powell also omitted any speak on rate cuts or their timing.  

The stock market regrouped and got back on a winning track. It did so with the help of renewed buying interest in the mega-cap stocks and some generally broad-based buying interest that left all 11 S&P 500 sectors in positive territory by the closing bell.  

Boeing ($BA) was the best-performing component in the $DIA one day after being the worst performing component in the Dow Jones Industrial Average. The turnaround was helped by a Bloombergreport that Boeing is getting ready to resume deliveries of its 737 MAX to China.  

The Treasury market had its own ups and downs as the 2-yr note yield went as high as 5.10% before settling at 5.05%, up 4 basis points from yesterday’s settlement. The 10-yr note yield touched 4.27% soon after Fed Chair Powell’s speech but settled the day unchanged at 4.24%. The low for the S&P 500 today coincided roughly with the 10-yr note yield hitting its high for the day.  

Economic data for the day included only the University of Michigan Consumer Sentiment Index reading for August. It came in at 69.5 versus the preliminary reading of 71.2. The final reading for July was 71.6, which marked the highest level since October 2021. In the same period a year ago, the index was at 58.2. The key to the report is that if consumers think the rapid improvements seen in the economy in the past three months have moderated, then they’ll be more tentative about the outlook ahead.

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

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

Regards, Dividend Dollars

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

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

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

Dividend Dollars’ Outlook & Opinion

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

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

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

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

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

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

Weekly Market Review

Summary:

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

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

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

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

Monday:

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

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

Tuesday:

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

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

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

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

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

Wednesday:

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

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

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

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

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

Thursday:

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

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

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

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

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

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

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

Friday:

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

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

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

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

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

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

Regards,

Dividend Dollars