The Safe Investing Blog

Stock Market Outlook entering the Week of March 31st = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook ends the first quarter of 2024 in an uptrend.

The S&P500 ($SPX) rose 0.4% last week, ending Q1 with a gain of 10.8%.  The index sits ~4% above the 50-day moving average, and ~14% above the 200-day moving average.

SPX Price & Volume Chart entering the Week of Mar 31 2024

All three signals show an uptrend in place.  Institutional selling picked up last week, although volume remained below average.

In terms of sector performance, Real estate ($XLRE) claimed the top spot last week, after being the worst sector two weeks ago.  Energy ($XLE) was a close second.  Technology ($XLK) underperformed last week.

S&P Sector Performance for Week 13 of 2024

For the quarter, the $SPY ETF was up 11%, slightly more than the actual index.  Communications ($XLC) topped the gainers for the quarter, rising ~13% (+2% vs. the SPY).  Capital flows were not kind to Real Estate ($XLRE), which dropped ~1.5% for the quarter.  That’s a -12.5% loss versus the overall index.

From an asset class perspective, “commodities” were the best in Q1, albeit with a very large range of performance.  Bitcoin, livestock, and oil were the best performers, while industrial materials and agriculture lagged.

In second place was U.S. equities (i.e. $SPX), again with some variation by sector.  Then came gold, bond funds, and finally the US dollar.  All in all, this breakdown is typical of a “nominal expansion”, or economic growth (+GDP) with rising prices (+inflation).

COMMENTARY
The third and final GDP revision showed the US economy grew 3.4% in Q4 of 2023, slightly higher than the 3.2% reported in the second estimate. Consumer spending was revised higher, which isn’t surprising given “sticky” inflation data.

Government spending continues to contribute a large portion of GDP, increasing 4.6% year over year and showing now signs of slowing.  This may be on reason that asset prices and economic data behaved like it’s a nominal expansion (rising growth and rising inflation), while consumers “felt” that conditions are more recessionary (falling growth and rising inflation).

During the trading holiday on Friday, PCE data was released.  Thankfully, there were no surprises as changes were inline with expectations.

This week is all about jobs, with JOLTS and NFP releases, as well as several speeches by Fed officials (including another one from Powell on Wednesday).

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of March 24th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, as the $SPX ended the week just shy of another all time high.

The S&P500 ($SPX) rose just over 2% last week and re-established the long-term trendline.  The index sits ~4.5% above the 50-day moving average, and ~14% above the 200-day moving average.

SPX Price & Volume Chart for the Week of Mar 24 2024

All three signals show an uptrend in place.  Institutional selling was scarce last week, and On Balance Volume rebounded from its moving average.

Communications ($XLC) outperformed the broader index last week, thanks in large part to its large weightings for Google ($GOOG/$GOOGL) and Meta ($META).  Real estate ($XLRE) spent a second week in a row as the weakest sector, with Equinix ($EQIX) dragging down the sector after Hindenburg Research alleged senior management manipulated financial metrics to trigger executive stock grants.

S&P Sector Performance for the Week of Mar 24 2024

COMMENTARY
The FOMC left rates unchanged. And while Powell may not have delivered a rate cut, he did deliver a dovish press conference.  Despite continued economic growth, low unemployment, and sticky inflation, the Fed still sees a total of 3 rate cuts this year, as well as the reduction of their quantitative tightening program.  Expectations are for inflation to gradually fall back to 2%, although the path with be “bumpy”.

The Bank of Japan went the other direction and raised rates for the first time in 17 years.  While the impact was small (from -0.1% to a range of 0.0% – 0.1%), it marks a move away from its negative interest-rate policy, and a potential change in profitability of the Yen Carry trade so many institutions use for low-risk arbitrage.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of March 17th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place.  Although the signals stayed the same, weakness crept onto the scene last week and suggests a consolidation period is at hand.

The S&P500 ($SPX) lost 0.1% last week, and closed just below the rally’s trendline.  The index sits ~3% above the 50-day moving average, and 12% above the 200-day moving average (still historically elevated).

SPX Price & Volume Chart for the Week of Mar 17 2024

All three signals show an uptrend in place, but the equity market probably tests those levels in the days ahead.  The index picked up a couple of distribution days last week, but option expiration masks the nature of Friday’s move.  Still, the count is elevated at 5, with 4 occurring over the past 10 trading sessions.  On Balance Volume remains above the 3 month average, but definitely weakened last week.

S&P Sector Performance for the Week of Mar 17 2024

The energy sector ($XLE) outperformed the broader index again last week, rising 3.8%, thanks in part to a bounce in the price of oil.  Real estate ($XLRE) had a tough week; the sector sold off as long-term interest rates popped higher, in response to higher PPI data.

**Note: $SPY performance in the table above isn’t adjusted for last week’s dividend (gain of ~0.3%).

COMMENTARY
The odds of rate cuts before June have fallen dramatically over the past 2 months, as data shows inflation remains “sticky”.

February CPI was slightly higher than expected, for both core and headline figures, although core was down from last month.

February PPI, like CPI, was higher than expected, and also registered a jump in headline data.

In the absence of new PCE data (next release is March 29), higher than expected CPI/PPI data does not bode well for those still hoping the Fed cuts rates this Wednesday. Even a June rate cut, which was a certainty a few weeks ago, looks closer to a 50/50 proposition at this point.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of March 10th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, with no change to the underling signals versus last week.

The S&P500 ($SPX) lost 0.1% last week.  The index sits ~4% above the 50-day moving average, and 12.5% above the 200-day moving average (historically elevated).

SPX Price & Volume Chart for the Week of Mar 10 2024

All three signals show an uptrend in place. The ADX continues to wane with the positive directional indicator elevated (yellow light).  While outright distribution days have been in short supply since the beginning of the year, there have a been a couple of stalling days in the past 5 weeks, which were absent from last week’s chart.

S&P Sector Performance for the Week of Mar 10 2024

While the S&P500 was basically flat for the week, the energy sector ($XLE) and utilities ($XLU) outperformed, taking their turn as beneficiaries of the decline in the yield curve.

COMMENTARY
While ISM Services PMI was in line with estimates, U.S. factory orders caused a brief stir in the equity market on Tuesday.  New orders for manufactured goods in February fell 3.6% from January readings, which is the largest month/month drop since April 2020.

Wednesday’s JOLTS data was “unremarkable”, and Powell admitted to Congress what everyone in the banking industry expected: that pesky plan to raise capital requirements for large banks (i.e. Basil 3 standards) will be overhauled after industry complaints cost and economic impact.

Friday’s February nonfarm payrolls report showed 275k added jobs were added; more than the 198k forecast. Unemployment rose to 3.9%, while expectations were for it to remain at 3.7%. More importantly, though less reported, was the negative revision to January’s NFP data; jobs added was revised down from 353,000 to 229,000 (-35%)!

Speaking of things that didn’t get much notice, the Japanese Central Bank appears to be prepping the market for the end of its negative rate program, in place since 2016. Doing so would reduce the profitability of the Japanese Yen Carry Trade, a form of arbitrage used by institutions in forex/currency and debt markets. Employed across the globe since the mid-1990s, it came back into favor for the U.S. with the Fed’s recent hiking cycle.

Friday’s trading session also gave a great example of current market capitalization dynamics.  The performance of the indexes looked “not good” for most of the day.  But if you look beneath the surface, you’ll see that performance wasn’t widespread.

Source: T1 Alpha // https://tier1alpha.com/

The S&P500 ended the day with a 0.57% loss.  But the number of advancing and declining stocks was 50/50.  What caused the negative performance shift?

Source: T1 Alpha // https://tier1alpha.com/

As shown in the table above, 22% of the S&P500’s loss came from 1 stock, $NVDA.  $AVGO and $MSFT didn’t help either. Per Goldman Sachs:

The 10 largest stocks now account for 33% of S&P 500 market cap, well above the 27% share reached at the peak of the tech bubble in 2000, and 25% of earnings.

The good news? High concentration doesn’t end rallies.

This week, we get CPI on Tuesday, PPI on Wednesday, and another massive options expiration (quarterly) on Friday.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of March 3rd = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, with almost no change in the underling signals versus last week.

The S&P500 ($SPX) rose 0.9% last week.  The index sits ~5% above the 50-day moving average, and 13.5% above the 200-day moving average (historically elevated).

SPX Price & Volume Chart for the Week of Mar 03 2024

All three signals show an uptrend in place. The DI+ remains over 40 (yellow light).  There were no distribution days during the month of February, although trading volume was below average most of that time.

Taking a look at sectors with the S&P500, the big winner was real estate, which benefiting from the decline in rates last week. The sector rallied 3.3%, outperforming the broader index by almost 2%. Healthcare the worst sector, underperforming by ~2%.

COMMENTARY
90% of Q4 earnings season is complete and the results are in:

• Revenues: +3.4% (y/y)
• Earnings: +10% (y/y)

In case you’re wondering: No, that’s not an earnings recession!  That’s actually pretty solid earnings growth.  Soft-landing indeed.

This week, we get ISM services inflation on Tuesday, JOLTS on Wednesday, and NFP on Friday.  There are also a handful of speeds from the U.S. Federal Reserve, including two from Chairman Powell on Wednesday and Thursday.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of February 25th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, with all three signals showing green.

The S&P500 ($SPX) rose 1.7% last week.  The index sits ~5% above the 50-day moving average, and 13% above the 200-day moving average.

SPX Price & Volume Chart for the Week of Feb 25 2024

All three signals show an uptrend in place.  However, the DI+ reading over 40 is a yellow light, especially with the overall ADX showing a weakening trend since the start of the year.

COMMENTARY
Nvidia ($NVDA) was the star of the show last week, coming through with an earnings beat Wednesday evening.  Per T1Alpha, Nvidia’s subsequent rally on Thursday (up 16.4%) was responsible for a third of the SPX’s 2% rally.

Think about that for a moment; ~30% of the move in an index of ~500 stocks came from one, single, company.  That’s amazing.

Thursday also marked the end of another streak: 252 trading sessions without a 2% move in the SPX.

Fighting the market (up or down) is always a losing proposition, so always ensure probabilities are in your favor.  Referring back to the 200-day moving average:  since the start of 1990, we’ve had 8602 trading sessions. The SPX has been 13% or higher than the 200 day moving average for 492 of those sessions.  That’s just 5% of the trading days over the past 34 years.

If the SPX is 15% or higher, the number of sessions drops to 208, or just 2.4%.

Now, I’m not saying a correction is eminent.  The SPX could move sideways for a while, which take the gap lower.  Or we could enter a period like the late ’90s with a lot chop.  In both cases, the probabilities are shifting towards downside risk, rather than upside opportunity.

This week, be on the lookout the latest Durable Goods data on Tuesday, a revised GDP figure on Wednesday, PCE data on Thursday, and ISM manufacturing data on Friday.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of February 18th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, with the index sitting just below its 52-week high.

The S&P500 ($SPX) fell -0.4% last week, accounting for only the second weekly drop since the end of October.  The index sits ~4% above the 50-day moving average, and 11.5% above the 200-day moving average.

SPX Price & Volume Chart for the Week of Feb 18 2024

Both ADX and price/volume signals show an uptrend in place, within minimal institutional selling.  This week’s update sees the return of a third signal, in the form of the On Balance Volume indicator. In replacing Elliott Wave, I wanted to find a signal that was:

1. Available from free charting software like Stockcharts
2. Aligned with passive capital flows (e.g. the large volume of money that’s passively added to index funds via 401k’s)

Per Investopedia, On-balance volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price, which seems to fit the bill.  We’ll see how it holds up when the next correction hits.

COMMENTARY
Higher than expected inflation data was an unwelcome surprise for investors, and sent pundits scrambling for new narratives to justify rate cuts this year.

• January CPI (y/y)
  • • Headline
      • Actual      = +3.1%
      • Prior         = +3.4%
      • Expected = +2.9%
    • Core
      • Actual      = +3.9%
      • Prior        = +3.9%
      • Expected = +3.7%

• January PPI (y/y)
  • Headline
    • Actual      = +0.9%
    • Prior         = +1.0%
    • Expected = +0.6%
  • Core
    • Actual      = +2.0%
    • Prior        = +1.7%
    • Expected = +3.%

Immediate reaction from markets was as expected, with longer-term (>10 year) interest rates spiking higher and equities dropping.  That said, equities recovered nicely from each surprise.

Lost in the shuffle were poor retail sales figures, which were down 0.8% month over month, versus the expected for a decline of 0.1%.

A light week on tap for economic data, to be replaced with FOMC minutes on Wednesday and several speeches from Fed officials Thursday.

U.S. equity markets are closed tomorrow (Feb 19th)for President’s Day.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, Stockcharts.com, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.