Good Friday evening to all of you here on r/stocks! I hope everyone on this sub made out pretty nicely in the market this past week, and are ready for the new trading week ahead. 🙂
Here is everything you need to know to get you ready for the trading week beginning August 8th, 2022.
Stocks wavered Friday in a volatile trading session after the July jobs report was much better than expected, as investors assessed what a strong labor market would mean for the Federal Reserve’s rate tightening campaign.
The Dow Jones Industrial Average gained 76.65 points, or 0.23%, to end at 32,803.47. Even with Friday’s gains, however, it fell on the week. The S&P 500 shed 0.16% to end at 4,145.19, and the Nasdaq Composite lost 0.50% Friday, falling to 12,657.56. Still, both the S&P 500 and the Nasdaq ended the first week of August higher.
Losses were offset by bank stocks, which rose on hopes that interest rate hikes will continue at a solid clip. Energy stocks also gained, but technology companies slumped.
The labor market added 528,000 jobs in July, easily beating a Dow Jones estimate of a 258,000 increase. The unemployment rate ticked down to 3.5%, below the 3.6% estimate. Wage growth also rose more than estimated, up 0.5% for the month and 5.2% higher than a year ago, signaling that high inflation is likely still a problem.
Stocks opened lower following the report, even as it seemed to indicate the economy was not currently in a recession. Job growth was expected to slow as the Fed continues to hike interest rates to tame inflation, but this report shows a labor market still running hot. That means the central bank may act more aggressively at its next meeting.
“Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station, because that’s not in the cards,” said Art Hogan, chief market strategist at B. Riley Financial. “It is clearly a situation where the economy is not screeching or heading into a recession here and now.”
Friday’s jobs report is a crucial one as it’s one of two the central bank will see before it decides how much to raise rates at its September meeting. Indeed, traders are already betting on a tougher stance from the Fed. Policy makers will have another jobs report and two more consumer price index numbers to weigh before the central bank makes its next rate decision.
Major averages posted their best month since 2020 in July on the hope the Fed would slow the pace of its hikes. The S&P 500 added 9.1% last month.
This past week saw the following moves in the S&P:
S&P Sectors for this past week:
Major Indices for this past week:
Major Futures Markets as of Friday’s close:
Economic Calendar for the Week Ahead:
Percentage Changes for the Major Indices, WTD, MTD, QTD, YTD as of Friday’s close:
S&P Sectors for the Past Week:
Major Indices Pullback/Correction Levels as of Friday’s close:
Major Indices Rally Levels as of Friday’s close:
Most Anticipated Earnings Releases for this week:
Here are the upcoming IPO’s for this week:
Friday’s Stock Analyst Upgrades & Downgrades:
Crazy Moves in the Bond Market
The iShares 20+ Year Treasury Bond ETF (TLT) declined over 2% on Friday, which for a sector of the financial universe that is known for its safety, is a relatively rare occurrence. Since the ETF’s launch in 2002, only 3.1% of all trading days have been gains or losses of at least 2%. Not only was Friday a big move for TLT, but it was also the third day this week that the ETF was up or down 2% on the trading day. Talk about an uncertain environment! With investors looking to forecast the path and intensity of rate hikes against a backdrop of high inflation, stronger than expected economic data (like Friday’s Payroll report) puts upward pressure on yields, while weaker than expected data suggests the economy is cooling off causing bonds to rally and yields to fall.
As mentioned above, three of the last five trading days have seen daily moves of plus or minus 2%. Only two other periods throughout the history of TLT have seen a higher rate of 2%+ moves in TLT, those being August of 2011 and March of 2020.
Since TLT was launched in 2002, there have only been 22 trading days in which the ETF had moved 2%+ three times over a trailing five-day period. Those occurrences are shown on the chart below and they are clustered around three different periods – the Financial Crisis, the US debt downgrade in 2011, and the COVID crash. Needless to say, these were all very tumultuous periods in the markets and economy.
Interestingly, there have been seven years since 2002 in which TLT has had less 2%+ percent daily moves than we have had in the last five days! For the entire year, this week’s three occurrences take the total number of 2% daily moves for TLT to 17. There are still five months left in 2022, but if there wasn’t another day with a gain or loss of 2%, this year would still rank fourth in terms of total 2%+ moves. Not only that, but if this year’s pace were to continue, it would put 2022 on track for a record twenty-nine 2% moves, surpassing the prior record of 22 from 2011.
Bulls Battle Bears at June Highs Resistance
The game is on as the market awaits tomorrow’s employment report and to see if the other shoe is going to drop on layoffs. Not to mention any deeper impact on the economy from inflation and the prospect of more aggressive rate increases from the Fed.
We are taking the excitement over the renewed bullish sentiment with a grain of salt. There was a similar rise in bullish sentiment at the end March as that rally stalled just before the bottom fell out.
Investors Intelligence Bulls/Bears Difference also rallied back above zero in late-March as it has the last few weeks. Red circles in the chart show comparable moves above zero during the 2008-2009 and 2015-2016 bears well before those bottoms.
We may yet push a bit higher, but our cycles and indicators are still pointing to a retest of the June lows with the potential for a lower low before the bottom over the next three months.
Bulls Back Above 30%
While the rally has paused today, the S&P 500 has continued to press higher in the past week and is currently hovering near resistance at the late May/early June highs. In response to those moves, investor sentiment has improved with the weekly survey from the AAII showing over 30% of respondents reporting as bullish. That is the highest reading since the first week of June when the S&P 500 was at similar levels to now.
Bearish sentiment is a similar story in hitting the lowest level since the first week of June as it has fallen back below 40%. The further 1.2 percentage point drop marks the fourth week in a row that bearish sentiment has fallen, and the full decline since the recent high of 59.3% on June 23rd now sits at over 20 percentage points.
In spite of those further improvements, there continues to be more bears than bulls as the spread remains in negative territory. As shown in the second chart below, the bull bear spread has now been negative for 18 weeks in a row.
In addition to the drop in bearish sentiment, neutral sentiment was also lower falling 1.6 percentage points down to 30.6%. That is the first time neutral sentiment matched bullish sentiment since May of last year.
Strongest July in Post-WWII Era
On Friday, the S&P 500 closed over 140 basis points higher on the back of favorable earnings from Apple (AAPL), Amazon (AMZN), Chevron (CVX) and Exxon (XOM). This was the third straight day in which the S&P 500 gained at least one percent, allowing bulls to breathe a sigh of relief after a tough start to the year. These moves came even as a second consecutive quarter of negative real GDP growth was reported and the Fed hikes rates by 75 basis points.
Friday’s move helped the S&P 500 post its best July in the post-WWII era, finishing with a gain of 9.2%. Although the index is still close to 14% off of its early January highs, the market looks more inviting than it did at the beginning of the month, when the YTD declines were above 20%. As investors, we could just give ourselves high fives for the month, but it’s vital to remain forward-looking. Following July gains of 5%+, the S&P 500 has averaged a gain of 0.6% in August (median: +1.4%), performing positively 60 percent of the time. Between the start of August and the end of the calendar year, the index has averaged a gain of 8.0% (median: +10.0%), gaining 80% of the time. Over the following twelve months (starting in August), the index has averaged an impressive gain of 15.6% (median: +15.4%), rallying 87% of the time. Based on past history, bull runs in July tend to bode well for the market for both the rest of the year and over the following twelve months. Click here to learn more about Bespoke’s premium stock market research service.
Rotating in August
Following the best July of the post-WWII era, equities have been getting off to a slower start in August with the Russell 3,000 experiencing a modest decline yesterday and the index fighting to move into the green as of midday today. Most of the move to start August appears to a degree to be rotational in nature. In the chart below, we show the average performance of deciles of Russell 3,000 stocks grouped by their performance in the month of July. As shown, both the best and worst performers last month have rallied in early August with the deciles of the worst performers seeing slightly larger gains. The losers this month have been in the middle of the performance spectrum as deciles 4 through 7 are each flat to lower over the past couple of sessions.
Equities bottomed in mid-June and have been in rally mode ever since. As for how performance the past couple of days relates to the first half of the year’s declines, again the worst performers have generally been outperforming. However, by this measure, the top performers from the 52-week high just after the New Year through the low in June have continued to fall this week.
Hot Julys Often Bring Late-Summer/Autumn Buys
Inflation, war, recession fears, aggressive Fed rate hikes, lingering supply chain issues, layoffs, earnings misses, and lingering pandemic issues drove the market into official bear market territory last month.
Driven by hopes of a soft landing, a resilient labor market, pockets of positive economic and corporate results, and some rather seriously oversold conditions in big name tech and growth stocks the market has rallied smartly off the June lows.
At the end of July DJIA was up 9.9% from the June lows, S&P up 12.6% and NASDAQ up 16.4. Summer rally 2022 has worked the bulls into a frenzy like a matador with his red muleta. DJIA logged its 7th best July since 1950, up 6.7%, qualifying as a “Hot July Market.”
Gains of this magnitude for July, however, have frequently been followed by late-summer or autumn selloffs and better buying opportunities than now. In the past, full-month July gains in excess of 3.5% for DJIA have been followed historically by declines of 7.2% on average in the Dow with a low at some point in the last 5 months of the year.
Initial Claims Back to the Highs
Initial jobless claims came in matching expectations at 260K this week, up from last week’s downward revision of 254K. That reading leaves claims 1K below the pandemic high set two weeks ago. Those levels are above the pre-pandemic range and consistent with where claims stood in the fall of 2017.
On a non-seasonally adjusted basis, claims have the benefit of seasonal tailwinds at this point of the year as the mid-summer peak works itself out. Given this, unadjusted claims have dropped to 205.6K from the high of 258.9K two weeks ago. Although that is a strong level of claims, it is above the readings from the comparable week of the year in 2018 and 2019.
Continuing claims are lagged an additional week to the initial claims number meaning the most recent reading is as of the week of July 22nd. Although initial claims had fallen that week, continuing claims moved back above 1.4 million for the first time since mid-April. Unlike initial claims, and as we will discuss further in tonight’s Closer, the deterioration in continuing claims has been relatively modest as current levels are not only well below levels from the two years pre-pandemic, but this week’s reading would still make for some of the best readings since 1970.
Here are the most notable companies (tickers) reporting earnings in this upcoming trading week ahead-
Below are some of the notable companies coming out with earnings releases this upcoming trading week ahead which includes the date/time of release & consensus estimates courtesy of Earnings Whispers:
Monday 8.8.22 Before Market Open:
Monday 8.8.22 After Market Close:
Tuesday 8.9.22 Before Market Open:
Tuesday 8.9.22 After Market Close:
Wednesday 8.10.22 Before Market Open:
Wednesday 8.10.22 After Market Close:
Thursday 8.11.22 Before Market Open:
Thursday 8.11.22 After Market Close:
Friday 8.12.22 Before Market Open:
Friday 8.12.22 After Market Close:
(CLICK HERE FOR FRIDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
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DISCUSS!
What are you all watching for in this upcoming trading week?
I hope you all have a wonderful weekend and a great trading week ahead r/stocks. 🙂
