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 September 12th, 2022.
U.S. stocks rallied Friday as Wall Street caps off a strong weekly performance, recovering from a Federal Reserve-induced slump.
The Dow Jones Industrial Average gained 377.19 points, or about 1.19% to 32,151.71. The S&P 500 jumped 1.53% to 4,067.36, and the Nasdaq Composite climbed 2.11% to 12,112.31.
Shares of DocuSign surged more than 10% after the electronic agreements company reported an earnings beat. The company also issued a third-quarter revenue forecast that was above expectations.
All three major averages snapped a three-week losing streak. The Dow added 2.66% on the week, while the S&P 500 gained 3.65%. The Nasdaq Composite is 4.14% higher.
Stocks have been volatile recently as expectations of a 0.75 percentage point rate hike this month grew on Wall Street, after the Federal Reserve Chair Jerome Powell said again that he is “strongly committed” to bringing down inflation.
“The case for the ongoing bear market is that the Fed will continue to tighten monetary policy, withdraw liquidity from the market and cause a tailspin for equities,” said David Donabedian, chief investment officer of CIBC Private Wealth U.S. “But this week’s market recovery has shown there is continued resilience in the economy bolstered by favorable economic reports.”
Still, Donabedian added that he does not think stocks have reached the bottom of the bear market yet.
“Indeed, the journey to the next bull market will take time, and will be marked by a series of set-backs and recoveries,” he said.
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:
(CLICK HERE FOR THE CHART!)
(T.B.A. THIS WEEKEND.)
Here are the upcoming IPO’s for this week:
Friday’s Stock Analyst Upgrades & Downgrades:
The Midterm Election Is Two Months Away. What Investors Need To Know
First things first, the Carson Investment Research team would like to send our condolences to the Queen’s family, and all of our friends in the UK. We lost a great one yesterday and the world is a better place because of her.
Midterm elections are right around the corner, as this week marked two months from the always important election. Although this year investors have been more worried about inflation, the war, the economy, and the stock market than the election, one thing that is playing out once again is midterm years tend to be volatile.
The Calendar
As our first chart shows, the average midterm year since 1950 corrected 17.1% on average, the most out of the four-year presidential cycle. That’s the bad news, the good news is stocks gained 32.3% on average a year off those lows and have never been lower. Although we don’t know if June 16 is officially the lows or not, there could be a lot of opportunity for bulls over the coming year.
Here’s another look at the same thing, but breaking it down by each year.
Should we be surprised that stocks have had a tough go so far in 2022? Maybe not, as this next chart shows the worst time for stocks is a midterm year under a new President. With the S&P 500 up only 2.4% on average these years, it helps put the disappointing year so far into perspective. Now check out what happens the following year, which might be something many investors could be smiling about soon enough.
Here’s one more look at how stocks do based on the calendar. Below we’ve broken returns down by each quarter out of a 4-year presidential cycle. Sure enough, the first three quarters of a midterm year are historically quite weak, some of the worst out of the entire cycle actually. Once again though, we are on the cusp of some of the strongest quarters coming up and investors need to take notice of the positive seasonality right around the corner.
What About The Election?
Historically the party that loses the election is the motivated party and they tend to gain seats in the House and Senate. In fact, since World War I, the winning party lost nearly 30 seats on average at the first midterm election. FDR during the Great Depression and George W. Bush (post-9/11) are the only two instances when the President’s party gained seats in the House.
Please don’t shoot the messenger here, but President Biden’s approval ratings have been among the worst ever at this point of a new Presidency. In fact, his current Gallup approval rating of 42% extrapolates out to approximately a 40 seat loss in the House for the Democrats.
What does it mean for investors? Well, Republicans need to win only five seats to regain control of the House, which is quite likely at this point. The Senate is more of a coin toss, but history shows 4 seats have been added by the motivated party since World War II. With the Senate split 50/50 right now, this one is very close to call, but the Republicans could gain one seat and take full control of Congress. As the chart below shows, the very best scenario for stocks is a Democratic President and a Republican controlled Congress. Should the Democrats retain control of the Senate, that scenario of a Democratic President and split Congress is quite strong for stocks as well.
Leave On Some Good News
Odds are investors will start to hear a lot more about the midterm elections over the coming weeks. You might hear that these sectors will do well if so and so wins, or that these sectors will do poorly if this happens. The truth is no one really knows. After President Trump won in 2016 it was widely assumed coal and steel would do great, the opposite happened. Then under President Biden green energy was to do great and dirty crude and coal would struggle, again, the opposite has happened. We aren’t saying you shouldn’t think like this, it just isn’t so clear cut.
What is clear cut is stocks historically have done quite well the year after the midterms. As you can see in our last chart, the S&P 500 gained a year after the election every single time since World War II, with a very solid 14.1% average gain over that year. Why is this? Likely markets hate uncertainty and there is a lot of that leading up to a midterm election. But once the election is over the uncertainty is likely lifted.
So there you have it. Midterm elections are very important for a lot of reasons, but the best part for investors is once the election is over, stocks tend to get a nice tailwind. On the Carson Investment Research team we think this could happen once again and is one reason why we remain overweight stocks here.
Four Charts On The Worst Month Of The Year
“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” Mark Twain
Although October is known for some spectacular crashes, it is September that historically has been the worst month of the year for stocks, suggesting Mr. Twain should maybe change his famous stock market quote. In fact, as our first of four charts show, since 1950, the S&P 500 lost 0.5% on average in September, making it the worst month of the year. It’s also been the worst month over the past 10 and 20 years.
Why is it so weak you ask? The two ideas that make the most sense to me is first, the big boys are back from the Hamptons and begin to sell to square up their books. Secondly, many large hedge funds and institutions end their fiscal years in October and you tend to see some selling ahead of year-end. Of course, I’d like to ask why October isn’t weak if this is the case, but I digress. Whatever the exact reason, we just think it is important for investors to be aware of this potentially tricky month.
The next chart is something that most investors might not know. Most of the weakness historically takes place later in the month, while the first half is fairly strong.
Our next chart (or technically a table, but you know what I mean) is always a popular one, as it shows how each day of the year historically has done. This once again shows later in September is one of the worst times of the year. I’d like to note that my birthday is October 28, which until only recently had been the best day of the year. I’m not sure that’s a coincidence and I look forward to it taking back the number one spot soon.
Finally, this last chart shows that if stocks are weak heading into September, things can get even worse. As you can see, the average September drops 0.5% on average, but sports a slight gain if it starts the month above the longer-term 200-day moving average. The catch is things get worse when it starts beneath the 200-day moving average or down more than 15% year-to-date. Given 2022 started September down 17% year-to-date and beneath the 200-day moving average, the potential for seasonal weakness is quite high.
The good news is we do think the lows for the year are likely in, but it won’t be a smooth ride and we’d advise investors to be ready for some bumps over the coming weeks. Please continue to read our blog, as the Carson Investment Team breaks it all down for you.
September Quarterly Options Expiration Dangerous, Week After Pitiful
Since the S&P index futures began trading on April 21, 1982, stock options, index options as well as index futures all expire at the same time four times each year—known as Triple Witching. Some call it Quadruple Witching or Quad Witch due to single-stock and ETF futures, their impact on the market has thus far been subdued.
Monday Before September Triple Witching is less bearish with DJIA and S&P flat on average, but NASDAQ is down 14 of last 23 with and average loss of -0.25%. September’s option expiration week is up 57.5% of the time for S&P 500 since 1982. DJIA and NASDAQ have slightly weaker track records with gains 52.5% of the time and 55.0% of the time respectively.
However, the week has suffered several sizable losses. The worst loss followed the September 11 terrorist attacks in 2001. In the last nineteen years, S&P 500 and NASDAQ are tied for best record during September’s option expiration week, up thirteen times, but NASDAQ is down the last four. Friday had been firm with all three indices advancing every year 2004 to 2011, but S&P 500 has been down nine of the last ten since.
S&P 500 Down 25 of 32 Week After September Quarterly Options Expiration, Average Loss 0.89%
The week after September options expiration week, has a dreadful history of declines most notably since 1990. The week after September quarterly options expiration week has been a nearly constant source of pain with only a few meaningful exceptions over the past 32 years. Substantial and across the board gains have occurred just four times: 1998, 2001, 2010 and 2016 while many more weeks were hit with sizable losses.
Full stats are the sea-of-red in the tables here. Average losses since 1990 are even worse; DJIA –0.98%, S&P 500 –0.89%, NASDAQ –0.85%. End-of-Q3 portfolio restructuring is the most likely explanation for this trend as managers trim summer holdings and position for the fourth quarter.
Historic Small Cap Volatility
It’s no secret that growth stocks have underperformed value stocks over the last twelve months. The trailing-twelve-month performance spread (percentage points) between the small-cap growth and large-cap value indices, two opposite ends of the equity market, is currently at -20.5 percentage points. Although this is far above the recent low of -33.9 ppts, the current reading is in the bottom 6% of all days since the mid-1994 (when both the MSCI USA Small Cap Growth and MSCI USA Large Cap Value Index were active). Interestingly, this year’s trailing twelve-month performance spread was the lowest since 2001 (unwind of the dot-com bubble). Funny enough, the spread had hit the highest level since early 2000 in 2021, as excessive performance from small-cap growth stocks has tended to reverse course after reaching extreme levels.
Small-cap growth stocks tend to trade at significantly higher valuation multiples than large-cap value stocks, which is part of the reason that small-cap growth equities have sold off at a higher rate than their counterparts. These stocks also have higher betas, so market moves have a disproportionate effect. These factors have caused the average daily percent change spread between the two indices to reach an extremely elevated level, the highest since 2000 – 2001. This measure of volatility is also yet to roll over, indicating no end to the volatility regime that has been in place.
STOCK MARKET VIDEO: Stock Market Analysis Video for Week Ending September 9th, 2022
(CLICK HERE FOR THE YOUTUBE VIDEO!)
(VIDEO NOT YET POSTED.)
STOCK MARKET VIDEO: ShadowTrader Video Weekly 9/11/22
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(VIDEO NOT YET POSTED.)
Here are the most notable companies (tickers) reporting earnings in this upcoming trading week ahead-
(CLICK HERE FOR NEXT WEEK’S MOST NOTABLE EARNINGS RELEASES!)
(T.B.A. THIS WEEKEND.)
(CLICK HERE FOR NEXT WEEK’S HIGHEST VOLATILITY EARNINGS RELEASES!
(T.B.A. THIS WEEKEND.)
(CLICK HERE FOR TUESDAY’S PRE-MARKET NOTABLE EARNINGS RELEASES!)
(N/A.)
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 9.12.22 Before Market Open:
Monday 9.12.22 After Market Close:
Tuesday 9.13.22 Before Market Open:
Tuesday 9.13.22 After Market Close:
Wednesday 9.14.22 Before Market Open:
Wednesday 9.14.22 After Market Close:
Thursday 9.15.22 Before Market Open:
Thursday 9.15.22 After Market Close:
Friday 9.16.22 Before Market Open:
(CLICK HERE FOR FRIDAY’S PRE-MARKET EARNINGS TIME & ESTIMATES!)
(NONE.)
Friday 9.16.22 After Market Close:
(CLICK HERE FOR FRIDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
(NONE.)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
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. 🙂
