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 October 24th, 2022.
Stocks climbed on Friday as Wall Street closed a volatile week on a high note despite some disappointing earnings reports.
The Dow Jones Industrial Average gained 748.97 points, or 2.47%, to close at 31,082.56. The S&P 500 rose 2.37% to 3,752.75. The Nasdaq Composite added 2.31% to 10,859.72.
Friday’s moves extended the market’s gains for the week. The S&P 500 and Dow gained 4.7% and 4.9%, respectively, while the Nasdaq rose 5.2%. It was the best week since June for all three major averages.
The advance came despite the 10-year Treasury yield surging to its highest level since 2008 and a mixed bag of corporate earnings reports.
“I think at the end of last week market’s got a little bit oversold technically. And as we’ve seen so many times in the past, when things get negative enough it becomes some sort of a contrarian indicator for a bounce,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.
“But like every other bounce we’ve had, it hasn’t been very well sustained. … A bounce today doesn’t necessarily mean it’s going to continue into next week. If it does, I suspect it won’t be more than a day or two,” Frederick added.
Bank stocks were a bright spot on Friday, with Goldman Sachs gaining 4.6% and JPMorgan Chase adding 5.3%.
Earnings reports limited gains for the market. Dow components American Express and Verizon fell about 1.6% and 4.5%, respectively, after their quarterly reports. In tech, social media company Snap fell 28% after reporting a quarterly revenue of $1.13 billion, below expectations.
Treasury yields fell from their highs on Friday morning after a report from the Wall Street Journal that some Fed officials are concerned about overtightening with large rate hikes. That report appeared to boost equities as well.
The central bank’s aggressive rate hikes have been a major factor in stocks falling into a bear market this year, and traders have continued raising their estimates of where the Fed will stop.
“We really need a Fed pause. Not so much that they would just outright disavow future rate hikes, but that they would just say every meeting is live, and if the data go our way then after the first half of ’23 we don’t have to do more,” said Stifel chief equity strategist Barry Bannister on CNBC’s “Squawk on the Street.”
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:
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Here are the upcoming IPO’s for this week:
Friday’s Stock Analyst Upgrades & Downgrades:
Price and Breadth Blowout Into the Weekend
In today’s Morning Lineup, we noted the consistency in which the S&P 500 has finished the week with a decline of 1% or larger this year. Today is not looking to add to that count as the index rallies well over 2%, but it would make for the twelfth week this year and third in a row in which the index has gone into the weekend with a move of 2% or more in absolute terms. As shown below, the only years of the past 70 with a comparable number of weeks has been 2000 (11) and 2008 (12).
In addition to moving over 2% in absolute terms, there has been breadth to boot. The last three Fridays have been “all or nothing” days (daily advance-decline reading of +/-400). In total on the year, there have now been 14 weeks to end with an “all or nothing” day. No other year since at least 1990 has seen as many with 2011 the closest at 12 weeks. Further, the only other times that there have been similar streaks to the current one were in 2011 and 2016.
Halloween Indicator, Sell in May, Call It What You Will, It Works
We call it the Best Six Months. And as far as we know it was first discovered and published by Yale Hirsch, our late founder and creator of the Stock Trader’s Almanac, in 1986 in the 1987 Stock Trader’s Almanac.
This seasonal strategy has been a bonanza for investors, capturing the bulk of the market’s gains that occur from November to April, while avoiding the volatility, penchant for downdrafts and sideways action that tends to materialize in the Worst Six Months May-October.
It’s been called many things by a laundry list of analysts, managers, and strategists from all corners of the earth – probably outer space as well – and proven by academia in many papers. Just Google it.
On the 35 Anniversary of the ‘87 Crash, as the bear market searches for bottom in a midterm year October, with negative sentiment and headwinds abounding, we want to make sure you were fully aware the Best Six Months are about to begin on November 1.
Evidence-based technical analysis and a scientific method back-test found the results to sound, valuable, have predictive power and statistically significant. The seasonality has clear causation, driven by the recurring behavior of institutions around their financial calendars.
Sentiment Streaks Press On
A small equity market bounce over the last week didn’t cause any major changes in investor sentiment, at least based on the weekly AAII numbers released this morning. The latest data from AAII showed 22.6% of survey respondents reported as bullish versus 20.4% the week before.
Bearish sentiment also rose slightly to 56.2% for the highest reading since the end of September when there were back to back weeks of readings above 60%.
There is little precedent in the history of the AAII survey for over half of respondents to report as bearish for this many weeks in a row. As shown below, this week marked the fifth in a row that bearish sentiment came in above 50%. That is now the second longest such streak on record behind the seven week long streak in the fall of 1990.
Given more than half of responses to the survey have reported bearish sentiment, the bull bear spread continues to show negative readings (meaning bears outnumber bulls). The reading remains at the low end of the past decade’s range at -33.6.
Similar to five straight weeks of 50%+ bearish sentiment, the streak of weeks with a negative bull-bear spread has grown to become the second longest on record at 29 weeks.
Turning to another reading on sentiment—the NAAIM Exposure Index—another notable streak has continued to press on this week. This index measures investment manager exposure to equities with readings ranging from -200 (leveraged short) to +200 (leveraged long) and readings of +/-100 representing responding managers are full long or short. The index has remained below 50 for eight weeks in a row now. That has tied the streak of sub-50 readings in the spring of 2020. Going back through the history of the index dating back to 2006, there have only been seven other periods in which equity exposure by active managers has been as muted for as long of a span as now. In other words, the AAII survey is not alone in showing persistent pessimism.
Claims Take A Seasonal Dip
It was a good week for jobless claims as the seasonally adjusted number fell 12K to 214K versus last week’s downward revision to 226K. That compares to forecasts that were expecting claims to rise further to 233K. At current levels, claims remain healthy and within similar levels to the pre-pandemic range.
On a non-seasonally adjusted basis, claims were also lower as might be expected for the current week of the year. Historically, the current week of the year has consistently seen a brief break in the Q4 seasonal uptrend in claims. With that occurring again this year, claims are impressively strong. The only two years in which the comparable week has seen a lower reading in the non-adjusted number were 1969 (155K) and 1968 (151K).
As we highlighted last week, roughly a third of the rise in national claims last week was thanks to Florida which was recently impacted by Hurricane Ian. One week later, claims in that state improved albeit they remain elevated and account for a disproportionally large drag on the national claims number. We would note, that the current hurricane-related spike is similar in size to the fall of 2017 when there was a historically damaging hurricane season (the year of Hurricanes: Harvey, Irma, and Maria).
Turning to continuing claims, which are lagged an additional week to the initial claims number, the picture remains unchanged versus recent months. Claims are historically strong at 1.385 million and much lower than initial claims.
Housing Continues to Roll…Over
The latest update on Housing Starts and Building Permits from the Census Bureau was released this morning, and the results continue to reflect a significant slowdown in the sector. On a y/y basis, both starts and permits saw declines of 7.7% and 3.2%. respectively. The real weakness, however, has been in single-family units where starts are down 18.5% and permits fell 17.3% even as multi-family units were both up by double-digit percentages y/y. On a regional basis, the west was the only region to register a m/m uptick (4.5%) while the northeast was the only region registering an increase relative to last year. For permits, every region except the northeast was up m/m while it was the only region to register an increase on a y/y basis.
Housing Starts have historically done a good job predicting turns in the business cycle, so the fact that we have now seen five straight months of declines in this reading is just another indication of the risk of a recession on the horizon. We would note, however, that while recessions usually follow peaks in the 12-month average, they weren’t always imminent.
Looking more closely at the last few years, in addition to the decline in Housing Starts, the 12-month average of Building Permits has also started to roll over.
Single-family starts and permits have been even weaker. and both have now declined for five straight months. Also, the magnitude of the recent decline has been steeper than anything seen since the period from 2010 through 2012.
Not All New Lows for Homebuilders
With mortgage rates running higher unabated and mortgage demand decimated, homebuilder sentiment has continued to tank. The latest reading on homebuilder sentiment from the NAHB hit a new post-pandemic low in October dropping from 46 down to 38. Outside of the weaker readings in May and April of 2020, August 2012 was the last time the index was as low as it is now.
Not only is the index at a new cycle low, but the 8-point month-over-month drop also ranks in the bottom 1% of all monthly moves. The declines in the present and future sales indices rank by similar magnitudes.
Although the headline index as well as sub-indices like present sales and traffic have not yet taken out 2020 lows, the index for future sales dropped to its lowest level since June 2012. As shown above, it has the lowest reading within its respective range historically of each of the sub-indices.
The only other index in the report that is below 2020 levels is the sentiment in the West region. While the Midwest and South have also fallen precipitously, the Northeast actually experienced a modest rebound in sentiment. Relative to other indices in the report, homebuilder sentiment in the Northeast is remarkably stronger with the index in the 62nd percentile relative to historical readings.
As for the technical picture of homebuilder stocks, recent declines have been a bit healthier than the broader market. Whereas major indices set new 52-week lows as recently as last week, the lows for the S&P 1500 Homebuilders Group at the end of September and the end of last week were between 7% and 8% above the June lows. Albeit the line is somewhat choppy, the relative strength line versus the broader market has also been generally trending upward since the spring as well.
While homebuilder stocks have been holding up surprisingly well, earnings season is on the horizon which has the potential to change that picture; especially if said earnings start to mirror macro housing data. Using data from our Earnings Explorer database, below we show each of the S&P 1500 Homebuilder stocks as well as when they are expected to report earnings and what their historical Q3 earnings beat rates and stock price reactions have been.
Overall, Tri Pointe Homes (TPH) has been one of the strongest performers for Q3 with a positive reaction by the stock 78% of the time as it possesses the strongest beat rates as well. In fact, for TPH Q3 ranks as the best quarter of the year for stock price reactions. That is also the case for TopBuild (BLD) and KB Homes (KBH). Conversely, Q3 marks the weakest response to earnings for LGI Homes (LGIH), Cavco Industries (CVCO), Toll Brothers (TOL), and Lennar (LEN). Click here to learn more about Bespoke’s premium stock market research service.
Here are the most notable companies (tickers) reporting earnings in this upcoming trading week ahead-
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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 10.24.22 Before Market Open:
Monday 10.24.22 After Market Close:
Tuesday 10.25.22 Before Market Open:
Tuesday 10.25.22 After Market Close:
Wednesday 10.26.22 Before Market Open:
Wednesday 10.26.22 After Market Close:
Thursday 10.20.22 Before Market Open:
Thursday 10.20.22 After Market Close:
Friday 10.21.22 Before Market Open:
Friday 10.21.22 After Market Close:
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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. 🙂
