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 5th, 2022.
U.S. equities fell on Friday to cap their third straight weekly decline, after a solid August jobs report failed to ease fears that the Federal Reserve would keep aggressively hiking interest rates to fight inflation.
After rallying through the morning, the Dow Jones Industrial Average erased a 370-point gain and finished the session lower by 337.98 points, or about 1.1%, at 31,318.44. The S&P 500 fell roughly 1.1% to 3,924.26, its lowest close since July. The Nasdaq Composite declined 1.3% to 11,630.86, recording its first six-day losing streak since 2019.
All of the major averages were lower to end the week, making it their third negative week in a row after slumping in the final days of August. The Dow and S&P lost roughly 3% and 3.3%, respectively, while the Nasdaq fell 4.2%.
“There’s still a lot of nervousness around what we’ll see over the next few months,” said Callie Cox, U.S. investment analyst at eToro. “Yes, inflation and the job market are coming back into balance, but at what cost? Markets are still figuring that out.”
“To make matters worse, the S&P 500 is trapped in the danger zone – below its three big moving averages,” she added. “Those moving averages served as floors up until a few weeks ago. Now, they seem to be ceilings that the index just can’t bust through. The mood has definitely changed. While we may not test the lows of this sell-off again, we also may not reach new highs any time soon.”
Stocks had been weighed down throughout this week by hawkish comments from Federal Reserve officials signaling that interest rate hikes aren’t going away anytime soon. That’s put traders on watch for a retest of the June lows, especially knowing September is historically a poor month for the market. Some have suggested that if the S&P 500 fails to hold the 3,900 level, those summer lows could come back into play.
Some investors were briefly comforted on Friday by the highly anticipated jobs report, which showed the economy added 315,000 jobs for the month, just under the Dow Jones estimate for 318,000. Stocks rallied in the first part of the day.
The unemployment rate rose to 3.7%, two-tenths of a percentage point higher than expectations. The August report is particularly important because it’s one of the last major economic reports the Fed will weigh before it raises rates at its September meeting. This data point could help the central bank determine whether a 75-basis-point hike.
The last major economic report of note is August CPI on Sept. 13 and is more likely to determine how aggressive the Fed needs to be in the near term.
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:
Weakness on Tuesday After Labor Day – DJIA and S&P 500 Down Five Straight
In the last 21 years, only Russell 2000 has registered an average gain of 0.03% on the Tuesday after the long Labor Day weekend. DJIA, S&P 500 and NASDAQ have struggled with negative average performance. DJIA, S&P 500 and Russell 2000 all have fallen for the last five years on Tuesday. On Wednesday the market’s performance has been varied. DJIA has performed the best, up 71.4% of the time with an average gain of 0.30%. S&P 500 is weakest, up only 47.6% of the time with an average gain of 0.29%. NASDAQ has a better record up 52.4% of the time on Wednesday, but a smaller average gain of 0.26%.
Bears Back Above 50%
In the wake of Jackson Hole and more hawkish than previously expected Fedspeak, the S&P 500 is on pace for its worst week since June. As a result, recent improvements in investor optimism have been entirely given back. The AAII survey of individual investors saw only 21.9% of respondents report as bullish this week. That is the worst reading in two months as the back-to-back declines over the past two weeks total 11.4 percentage points.
That was matched with a considerable increase in bearish responses. For the first time since early July, over half of respondents reported a pessimistic outlook for equities. Bearish sentiment’s eight percentage point week-over-week increase was the largest since mid-June and the third weekly increase in a row.
The inverse moves of bullish and bearish sentiment resulted in the bull-bear spread to quickly move down to the worst level since the start of July. That follows a string of readings only a couple of weeks ago in which bears outnumbered bulls by only single digits.
Given the reversal in the spread, the streak of negative readings presses on. Now at 22 weeks long, it ties the 1990 streak for the second longest on record.
The AAII survey was not alone in showcasing a much more pessimistic tone of investors. Both the NAAIM Exposure Index and the Investors Intelligence survey also pivoted to more bearish readings. Combining these three results, the average reading on sentiment has fallen back to more than one standard deviation below the historical norm. Although that is not as pessimistic of an aggregate sentiment reading as earlier this year, there have only been a handful of other times going back to the mid-2000s in which the investment community had as negative of an outlook towards the equity market.
August Declines All Around the World
The end of August is here and US equities, as measured by the S&P 500 ETF (SPY), have been on a wild ride. At the mid-month high, SPY was sitting on a 4.3% month-to-date gain, but that has more than entirely been erased as it is on pace to finish the month down closer to 3.5%. The country ETF of each other major global economy that we track in our Global Macro Dashboard is a similar story. Across these countries, on average, they had reached a 3.13% gain at their month-to-date highs, but today they are down an average of 3.5% MTD. Overall, developed markets have faired much worse than emerging market countries with average declines of 4.82% versus 1.24%, respectively. In fact, there are only two ETFs—Brazil (EWZ) and India (INDA)—that are currently positive for the month. Meanwhile, China (MCHI) is unchanged. On the other end of the spectrum, Sweden (EWD) has been the worst performer nearing an 11% decline with a number of other European nations following up with the next worst performance.
With stock markets around the world giving up the ghost in August, most have moved back below their 50-DMAs or even into oversold territory. There are no country ETFs more than one standard deviation above their moving averages although EWZ and INDA have only moved out of overbought territory in the past week.
As we show in the table above, this year’s declines have resulted in the average country ETF falling 24% below its 52-week high. Those declines bring the vast majority of these countries back below pre-COVID highs as well. At the moment, there are only four countries that remain above pre-COVID 52-week highs: Taiwan (EWT), India (INDA), the United States (SPY), and Canada (EWC). This exclusive group would need to fall substantially further to revert back to those prior highs, and as shown in the chart below, each one would also still have support at lows from earlier this year before pre-COVID highs become a technical level worth eying.
High Correlation Between Stocks and Bonds
So far in 2022, stocks and bonds have both sold off, leading investors with a balanced portfolio to experience historically painful drawdowns. Rates have risen, and partially because of this fact, equities have had a tough year. The S&P 500 ETF (SPY) is down 16.0% on a YTD basis, while the iShares Core US Aggregate Bond ETF (AGG) has shed 11.3% of its value. Typically, rates fall alongside equities, as investors shift their capital allocations to safer assets. 2022 has been different, though, and has seen selling in both bonds and equities. This has resulted in a historic level of positive correlation between the ETFs SPY and AGG going back to 2004 when AGG first started trading. Click here to start a two-week trial to Bespoke Premium and receive our paid content in real-time.
Although the 200-day correlation between stocks (SPY) and bonds (AGG) has been higher once before (in late 2009), the current level remains particularly elevated. The current 200-day correlation sits at 0.87, which signifies a strong positive relationship. In the last 200 days, stocks have moved in the opposite direction of rates on most days, as the market is incredibly focused on the bond market as the Fed transitions from an accommodative to a restrictive stance in the face of higher inflation. Interestingly, the correlation coefficient does appear to be rolling over, moving lower in each of the last 15 trading sessions. Historically speaking, the correlation coefficient has tended to turn negative not long after rolling over, as illustrated by the chart below.
The more we zoom in, the more the rollover becomes clear. The higher frequency measures, such as the 100 and 50-day correlation coefficients, have already moved substantially off of their recent highs, even though they are still elevated relative to history. The 100-day correlation coefficient is now at just 0.70, while the 50-day coefficient is even lower at 0.55, the lowest levels since mid-June and mid-May, respectively. This tells us that the 200-day correlation will likely pull back further, thus giving SPY a chance to gain even as rates rise, and visa-versa. As evidence of this, today SPY is down over 125 basis points even as AGG is up six bps, moving in opposite directions. To make a long story short, bonds and stocks may begin to diverge in terms of performance as the correlation between the two assets begins to roll over. Now you just have to figure out which direction they’ll each go!
The rolling 100-day correlation between stocks and bonds has been over 0.5 (or 50%) for 129 trading days, which is the longest streak since the inception of AGG by a considerable margin. Although the coefficient is declining, the 100-day correlation would need to drop another 0.2 points for this streak to end.
Continuing Claims Catching Up
Initial jobless claims had a strong showing this week as the previous reading was revised lower by 6K to 237K. From that revised level, claims fell another 5K down to 232K marking the lowest reading since the last week of June. That was also handily below expectations which were calling for an increase up to 248K. With another week over week decline, claims have now fallen for three weeks in a row; the longest streak of declines since February.
On a non-seasonally adjusted (NSA) basis, the current week of the year has historically marked the annual low. Assuming that is the case this year, 176.8K is in line with the readings from the comparable week of the year in 2018 and 2019. Although further declines are not out of the realm of possibility, assuming normal seasonal patterns, NSA claims will likely rise from here through the end of the year.
Continuing claims are lagged an additional week to initial claims.. While continuing claims remain low having avoided the same degree of upward drift that initial claims have experienced this year, this week’s reading did move up to 1.438 million. That marks the most elevated level since the first week of April.
Recently we have been highlighting the ratio of initial claims to continuing claims as a way of showing the disconnect between the two seasonally adjusted readings. In other words, the lack of filter through of initial claims into continuing claims, which can be extrapolated as those filing for unemployment are quickly finding new roles. Although the ratio remains well above the historical norm and especially the range of readings observed since the early 1990s, it has begun to roll over in the past five weeks. As for just how big of a drop it has been, the decline ranks in the bottom 2% of all 5-week moves on record. While that is not to say the overall claims picture (initial claims not turning into continuing claims) has completely turned around, it is a sign that continuing claims have been playing a degree of catch-up.
Here are the most notable companies 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 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 9.5.22 Before Market Open:
(CLICK HERE FOR MONDAY’S PRE-MARKET EARNINGS TIME & ESTIMATES!)
(NONE. U.S. MARKETS CLOSED IN OBSERVANCE OF LABOR DAY.)
Monday 9.5.22 After Market Close:
(CLICK HERE FOR MONDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
(NONE. U.S. MARKETS CLOSED IN OBSERVANCE OF LABOR DAY.)
Tuesday 9.6.22 Before Market Open:
Tuesday 9.6.22 After Market Close:
Wednesday 9.7.22 Before Market Open:
Wednesday 9.7.22 After Market Close:
Thursday 9.8.22 Before Market Open:
Thursday 9.8.22 After Market Close:
Friday 9.9.22 Before Market Open:
Friday 9.9.22 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 3-day weekend and a great trading week ahead r/stocks. 🙂
