Good Saturday morning to all of you here on r/StockMarket. I hope everyone on this sub made out pretty nicely in the market this past week, and is ready for the new trading week ahead.
Here is everything you need to know to get you ready for the trading week beginning May 17th, 2021.
Investors will see whether stocks carry their newfound momentum into the week ahead, as major retailers, including Walmart and Home Depot, report earnings and housing data dominates the calendar.
The Federal Reserve may also play a role. Minutes from its last meeting will be released Wednesday, and after April’s hotter than expected consumer and producer inflation, market pros will watch it closely.
Central bank officials are also scheduled to make comments, including Fed Vice Chairman Richard Clarida who speaks next Monday.
Stocks have been volatile. The rally on Thursday and Friday was unable to reverse the week’s heavy losses. The defensive consumer staples, financials and materials were on track for a positive week among major sectors. The worst performers were consumer discretionary, off about 3.7% for the week, and tech, which was down 2.2%.
Technology shares were among the best performers in Friday’s rally, up about 2.1%. Energy was the best performer, up more than 3%.
“Watch it with a certain amount of trepidation,” said Art Hogan, chief market strategist at National Securities. “It’s not like the things that spooked us this week, like inflation, are going away…I think the fact we bounced at the end of the week is constructive.” He added that he still expects the market to move forward with fits and starts.
But a positive for the market and the economy was the announcement on Thursday from the Center for Disease Control and Prevention that vaccinated people do not need to wear masks.
Fundstrat co-founder Tom Lee said in a report Friday that he now expects small caps and stocks that were hardest hit in the pandemic, like airlines and hotels, are ready to rise off the bottom.
He is still concerned about the tech sector, which big investors are using as a source of funds as they rotate into staples and health care.
The Fed minutes should basically be a replay of the last central bank meeting. But that was held before April’s Consumer Price Index was reported to be up a sizzling 4.2% year over year.
That last meeting also took place prior to the April employment report that showed just 266,000 payrolls, a quarter of what was expected.
“I think the Fed is willing to look through these weird data points. They’re thinking that one data point is not a trend,” said Joseph Song, senior U.S. economist at Bank of America.
But the markets have been focused on whether any data helps clarify how soon the Fed may start to talk about winding down its bond buying. That would be a precursor to slowly ending the $120 billion a month asset purchase program, and also a signal that it is one step closer to raising interest rates.
Hogan said when the weak employment report was released, the market view shifted away from the idea that the Fed could discuss tapering its bond buying when it holds its Jackson Hole Economic Symposium in late summer.
But the market moved back to that view when the hot CPI report was released Wednesday.
“We saw hot CPI, hot PPI,” said Hogan, referring to the producer price index. “That tells us the Fed could be behind the curve.”
The Fed has said it expects a transitory spike inflation, but concerns it may not be a temporary spike rippled through the market. But Hogan said investors took some comfort from declines in iron ore and copper, down nearly 2% for the week.
Retail earnings and housing
Big retailers report quarterly earnings throughout the week. Walmart and Home Depot will report Tuesday. Target, TJX and Lowe’s release results Wednesday, and B.J.’s Wholesale and Kohl’s on Thursday.
Another disappointing data point was Friday’s April’s retail sales, which came in flat with March. But they are still at a high level. Hogan said based on the sales report, retailers should have done well.
“You’re likely to hear the usual suspects are outperforming. It used to be Walmart, Target, Home Depot, Lowe’s,” said Hogan. He said now others have joined the list, like TJX and Gap, and should do well.
Besides earnings, there is housing data. The National Association of Home Builders sentiment index will be released Monday, and housing starts are published Tuesday. Existing home sales will be issued on Friday.
Hogan said depending on the data, it may help the homebuilders which fell hard in the past week. He noted that D.R. Horton and Hovnanian were both down for the week.
“The home building index is off 5% for the week, even with it being up 1% [Friday]. This is a red-hot sector that has lots of implications,” he said. “What’s good for home sales is good for auto sales. It’s good for Home Depot and Lowe’s.”
Homebuilders were part of a broad swath of the market that was bouncing Friday.
Scott Redler, chief strategist at T3Live.com, said by the end of the week, some of the growth and tech names were trading better, like Facebook and Alphabet.
“The S&P 500 held the 50-day moving average, which is constructive,” he said.
The S&P 500 came within about a dozen points of its 50-day, which is the average price of the last 50 closes. It is often a level that acts as support, but if it is broken, it can signal a negative trend.
The S&P 500 was down about 1.5% for the week at 4,173.85. The Nasdaq ended the week at 13,429.98, down 2.3% on the week.
“The tech sector, which has been under pressure, held its yearly uptrend earlier in the week. Today it felt a little better than the rest of the week,” Redler said Friday. “It doesn’t mean you can go into everything, but you can tell traders are picking away at better acting stocks at these prices.”
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:
Here are the upcoming IPO’s for this week:
Friday’s Stock Analyst Upgrades & Downgrades:
5 Charts We Are Watching
Last week’s monthly nonfarm payroll was disappointing, but it usually takes a long time for jobs to come back after a recession, so maybe we shouldn’t have been so surprised. In fact, looking at the 10 previous recessions, it took 30 months on average to recover all the jobs that were lost. Given we still have 8 million jobs to make up this time, we could still be quite a ways away from getting the labor market back to where we were pre-COVID-19.
The current bull market has tracked the start to the 2009 bull market nearly perfectly. “Be aware that right about now is when the 2009 bull finally took a break, falling more than 16% into the summer,” explained LPL Financial Chief Market Strategist Ryan Detrick. “We don’t expect that type of a pullback this time, but after an 89% rally, maybe a pullback or consolidation is in the cards.”
Copper is breaking out to new highs after consolidating for 15 years. The last time it did that it eventually gained more than 150%. Every time is different, but with the global economy soaring back and demand for copper not ending anytime soon, we expect this industrial metal to continue to lead.
We also keep an eye on the presidential cycle. We are now past President Biden’s first 100 days and choppy action with a new President in Office is perfectly normal right about now.
The financial press has discussed the well-known “sell in May and go away” market saying, but did you know it actually starts on May 5th? As the LPL Chart of the Day shows, the middle part of May is historically quite weak for stocks as the broadly weaker period begins. The calendar, you could say, isn’t doing anyone any favors even if the economy still is.
NASDAQ 100 Finds Support
Our go to leading market index indicator of late, the NASDAQ 100 (NDX), which is tracked by the widely held exchange traded fund (ETF) Invesco QQQ Trust (QQQ), may have found some support on Wednesday in the big sell off near 13000. Actually, using our wide chisel-tip Sharpie we would draw this current near term support between the black line support levels in the 13000-13200 range on the accompanying chart.
While we still do not expect any major decline here, we do not foresee any major upside either over the next six months – the Worst Six Month of the year May-October. We zoomed in and updated a few lines and notations on the charts we presented in our May Outlook and in our NDX Uptrend Broken, Support Under Pressure blog post earlier this week.
We are rather comfortable with our timely April 22 Best Six Months Seasonal MACD Sell Signal and with our outlook for a more typical “Reposition in May” period. The Fed can print money faster than the market can decline and more fiscal stimulus is coming down the pike as well as continued fuel from pent-up pandemic demand.
Look for NASDAQ and NDX to rebound and lead the rally into early July through the rest of its Best Eight Months November-June and the historically strong first half of July in keeping with seasonal market patterns. Though, we do see resistance at the recent April highs near NDX 14000.
If we do break below this 13000 support level there is support at the uptrend line since the September/October lows around 12900 and 12750, which would be an 8-9% pullback from the April 16 14041.91 closing Doji candle high. Below that are the March lows 12200-12420 which would be an 11-13% correction.
In our view all the stimulus, pent-up demand and Fed money will prevent any major down draft, while seasonals, valuations, technicals, internals, sector rotation and sentiment will keep a lid on the upside most likely until the fall. Please enjoy a more normal summer.
Door is Open For Developed International Stocks
We’ve warmed up to developed international stocks recently for several reasons. For one, the U.S. stock market has staged a tremendous rally—this week notwithstanding—since last March which has prompted us and others to start looking for other opportunities that aren’t pricing in so much optimism. Valuations, though not great timing tools, are more attractive in Europe and Japan. And we expect the US dollar to weaken which could boost non-US stock returns.
Another reason to take a closer look at international is the recent resurgence of value stocks. The developed international equity market (mainly Europe and Japan) is much more value-focused than the U.S. market, based on the MSCI EAFE Index and the S&P 500 Index. As shown in the LPL Chart of the Day, the relative performance of value stocks versus their growth counterparts has been well correlated to the relative performance of developed international stocks compared to those in the U.S. In other words, international tends to work when value works.
“Should strong performance by value stocks continue—and we suspect it might—international stocks will have their best chance in over a decade to sustain outperformance,“ explained LPL Equity Strategist Jeffrey Buchbinder. “The strength in cyclical value stocks such as financials, industrials and natural resources, coupled with tech sector weakness, gives European and Japanese markets a fighting chance of keeping up with the U.S. as those economies fully reopen.”
We can see how developed international stocks are more value-focused when looking at sector breakdowns for key indexes. As shown in the graphic below, the U.S. equity market (represented by the S&P 500 Index) has a much higher technology sector allocation, making it a more growth-oriented index than the MSCI EAFE Index benchmark for developed international equities. If digital media (think Google and Facebook, which are categorized as communication services) and e-commerce (think Amazon, which is in consumer discretionary) are included in this sector comparison, the technology gap widens even further. In essence, for international to outperform, U.S. technology leadership needs to hand the baton over to cyclical value. That transition has been happening over the last couple months and very well could continue.
At this point the primary factor holding us back from upgrading our view of developed international stocks to neutral from our current negative view is the pandemic. As Europe and Japan fully reopen and see the accelerating economic growth that the U.S. is seeing now, those markets may be in an even better position to outperform. Until then, we maintain our slight preference for U.S. stocks over developed international.
Bullish Sentiment Down Big
The past week has been one of the worst short term runs for the major indices of the past several months, and sentiment this week is reflecting that negative price action. Bullish sentiment as measured by the AAII weekly sentiment survey took a spill, dropping 7.8 percentage points to 36.5%. Whereas just over a month ago bullish sentiment hit a multi-year high at 56.9%, this week’s reading was the lowest since the last week of October.
The over 20 percentage point decline in that time was the biggest drop in a span of five weeks since a 22.73 percentage point decline in the five weeks ending February 8th, 2018. In the table below, we show the past 11 periods in which bullish sentiment fell by at least 20 percentage points in five weeks without another occurrence in at least a year. Overall, they have consistently preceded solid runs for the S&P 500 with frequent moves higher that are on average larger than the norm. One and three months later have both seen the S&P 500 trade higher 81.8% of the time and a half year to a full-year out has seen the index lower only one time (in 2007). Additionally, each of the prior instances since 2009 has been marked by the S&P 500 trading higher across all time frames.
With bullish sentiment lower, bearish sentiment gained 3.9 percentage points. At 27%, it is at the highest level since early February though still a few percentage points above the historical average of around 30%.
That has resulted in the bull-bear spread dropping 11.7 points to 9.5. That is the first single-digit reading in the spread since the first week of February, but it still indicates that overall sentiment remains biased towards the bulls.
While bearish sentiment has only risen modestly, neutral sentiment is flying. After gaining another 4 percentage points this week, neutral sentiment hit the highest level since the second week of 2020. Similar to bullish sentiment, the move higher in neutral sentiment over the past few weeks has been one of the largest in roughly three years.
You know it’s getting bad when inflation starts to trend on Twitter, but that’s where we find ourselves this morning with the terms ‘#GasShortage2021’ and ‘#inflation’ both trending on our Twitter feed.
On Google, the frequency of searches for the term inflation looks like it’s on its own path straight to the moon.
These real-time indicators of concerns over inflation also manifested themselves in the ‘official’ inflation data this morning as y/y CPI surged to 4.2%, eclipsing the prior post-financial crisis highs. Not only that, but if CPI is unchanged on a m/m basis in May (highly unlikely), the y/y reading will climb to 4.3% given the decline last May. If we assume that May’s m/m change is the same as the average so far this year, it would imply a 4.8% y/y change.
Even assuming that inflation only rises at the average m/m rate so far this year may be conservative at this point. That’s because the rate of increase on a m/m basis has now accelerated for six straight months. Going all the way back to the 1940s there’s never been a streak that long. Just for some perspective, if CPI increases by the same rate in May as it did in April, headline CPI will clock in at 5.1%.
While the current level of CPI looks very high relative to the post-financial crisis period, from a longer-term perspective, it still has yet to show signs of breaking out from its thirty-year range. Based on the pain from prior spikes, let’s hope it stays that way.
Small Businesses Growingly Concerned About Inflation
In today’s Morning Lineup, we covered some of the details of this morning’s release of the NFIB’s monthly survey on small business sentiment. The survey showed rising prices, tight labor market conditions, and overall improving demand.
The NFIB also surveys businesses on what they consider to be their single most important issues. For the majority of businesses, cost or quality of labor and government requirements or taxes are the most prevalent. In total, 64% of businesses reported one of these as the biggest problem. Meanwhile, the percentage of businesses reporting weak sales as the most pressing issue continues to fall which is indicative of a further recovery in demand. One other interesting decline was in the issue of competition from ‘big business’. Only 7% of businesses reported this as their biggest problem which is the lowest reading since October 2017. While up 1 percentage point in April, cost or availability of insurance is also still around some of the lowest levels of the past decade. While that mention of costs has ticked only slightly higher similar to the cost of labor which rose 1 percentage point in April, inflation more broadly is increasingly on the minds of small businesses. 6% of businesses reported higher prices as the biggest issue which is triple the reading from February and is the highest level since August 2013.Click here to view Bespoke’s premium membership options for our best research available.
STOCK MARKET VIDEO: Stock Market Analysis Video for Week Ending May 14th, 2021
STOCK MARKET VIDEO: ShadowTrader Video Weekly 5.16.21
Here are the most notable companies (tickers) reporting earnings in this upcoming trading week ahead-
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 5.17.21 Before Market Open:
Monday 5.17.21 After Market Close:
Tuesday 5.18.21 Before Market Open:
Tuesday 5.18.21 After Market Close:
Wednesday 5.19.21 Before Market Open:
Wednesday 5.19.21 After Market Close:
Thursday 5.20.21 Before Market Open:
Thursday 5.20.21 After Market Close:
Friday 5.21.21 Before Market Open:
Friday 5.21.21 After Market Close:
(CLICK HERE FOR FRIDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
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/StockMarket.