Market Journal – Issue 30

Is The Market Shaking Off This Correction?

Welcome to the thirtieth edition of the Market Recap & Outlook Report. Junior Analyst and Member Dividend Dollars reviews economic data releases, notable earnings, and other remarkable news and uses that information in alignment with technical analysis to establish opinions on the market’s outlook. That information is consolidated and compiled into this report every week for publication on their website and ThetaBandits.com.

Dividend Dollars is not a trader nor investment analyst by practice or profession. They are learning within this server just like many of our members. Therefore, nothing should be taken as financial advice. Rather, this report is just another resource within our toolbox and should be used to provide additional information and opinions on the market and its happenings. Enjoy reading!

Dividend Dollars’s 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 of 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 at 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 a 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 the 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 are 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 by 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 Bloomberg report 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

Sources:

Disclaimer: This article is for informational and educational purposes only, not investment advice. We recommend researching and consulting with a financial advisor before making investment decisions. All actions based on this information are at your own risk.

Similar Posts