The S&P 500 gained about +9.1% for July in its biggest monthly percentage gain since November 2020, while the Nasdaq jumped about +12.3% in July in its biggest monthly gain since April 2020. Dovish messages from the FOMC and better than feared corporate earnings have supported equities strongly over the week.
After data on Thursday showing that the U.S. economy is on the cusp of a recession this Friday’s monthly employment report will be even more highly anticipated than usual. The report is expected to show that the labor market remains robust, despite reports that some companies are cutting jobs and freezing hiring. Investors will also continue to digest a slew of earnings results with dozens of companies set to report in the coming week.
Here’s what you need to know to start your week.
1. Stocks rally
U.S. stocks added to their recent rally on Friday, with all three major indexes gaining for the month and for the week.
The S&P 500 gained about 9.1% for July in its biggest monthly percentage gain since November 2020, while the Nasdaq jumped about 12.3% in July in its biggest monthly gain since April 2020.
Stocks were boosted by mainly upbeat earnings reports, along with investor speculation that the Fed may not need to be as aggressive with interest rate hikes as some had feared.
2. Earnings deluge
Some better-than-expected earnings reports helped boost stocks last week and the deluge of earnings results is set to continue in the coming week with a broad range of companies, including Activision Blizzard ($ATVI), Caterpillar ($CAT), Uber ($UBER) and Eli Lilly ($LLY) reporting.
Positive forecasts from Apple ($AAPL) and Amazon ($AMZN) on Friday showed resilience in giant companies to survive an economic downturn.
Second-quarter U.S. corporate results have mostly been stronger than expected. Of the 279 S&P 500 companies that have reported earnings so far, 77.8% have exceeded expectations according to Reuters data.
Key Economic Calendar (Weekly)
Friday’s nonfarm payrolls report for July will show whether the recent barrage of Fed rate hikes have impacted the labor market. Analysts expect the economy to have added 250,000 jobs in July, moderating from June’s pace of 372,000, while the unemployment rate is expected to hold steady at a historic low of 3.6%. A smaller than expected number could bolster the view that the Fed may not be as aggressive as expected when it comes to interest rate hikes after Fed Chair Jerome Powell said last week that the central bank’s September rate decision will be data dependent.
Given mounting fears over the prospect of a recession, market watchers will also be paying particular attention to the Institute of Supply Management’s manufacturing PMI on Monday, and the ISM services PMI on Wednesday, which are both expected to confirm that the economy is slowing.
The U.S. is also to release data on JOLTS job openings on Tuesday. While job openings have been easing in recent months they are expected to remain at elevated levels.
All times listed are EDT
Monday
10:00: US –ISM Manufacturing PMI: forecast to decrease from 53.0 to 52.3
Tuesday
10:00: US- JOLTS Job Openings: forecast to decrease from 11.25M to 10.99M
Wednesday
10:00: US – ISM Services PMI: forecast to decrease from 55.3 to 53.9
Friday
8:30: US –Non-Farm Employment Change: predicted to decrease from to 250k from 372k
Top 3 Leading and Lagging Sectors (Weekly)
All 11 S&P 500 sectors gained ground this week with gains ranging from +1.5% (healthcare) to +9.7% (energy). The latter closed out a huge week on the back of stronger-than-expected earnings results from Chevron ($CVX) and Exxon Mobil ($XOM).
Market Breath (Weekly)
% of Stocks Above 50 DMA = 68.09% (+24.50%)
% of Stocks Above 200 DMA = 31.05% (+37.69%)
Market Technicals – (S&P 500, NASDAQ, Bitcoin, Bonds & Credit Spread, NAAIM)
$SPX (S&P 500) vs $RSP (S&P 500 Equal Weight) – (Net High/Low +69)
It was a huge of week of news that was ultimately matched with some big gains for the week that padded some huge gains for the month, which were driven in part by short-covering activity and a bid to add back exposure to equities following the brutal first half of the year.
$SPX closed the week with further gains of +4.26% last week, closing at 4,130 level. In turn, $SPX also reclaimed a posture above its 50-day moving average for the first time since April 2022.
The support to watch for this week is at 3,950 level, a resistance turned support level that would also slice through the existing rising 10/20/50-day moving averages.
$QQQ (Nasdaq 100) vs $QQQE (Nasdaq 100 Equal Weight) – Remains the Weakest Major Index Year To Date, But Relative Strength In Play
Tech and growth names have been hard hit since the start of 2022 by a rapid rise in Treasury yields on the back of expectations that the Fed will hike interest rates aggressively to combat high inflation as higher rates can hurt their companies with high valuations based on the prospect of future profits.
$QQQ remains as the weakest major index year to date with -20.8% return. $QQQ posted a weekly gain of +4.46% for the week, affirming its relative strength against $SPX since 25th May, At the current juncture, $QQQ have traded out of its month long Bullish Ascending Triangle pattern that was highlighted two weeks ago.
The support level to watch for $QQQ this week is at $295, an immediate resistance turned support level that would also slice through the existing rising 10/20/50-day moving averages.
$BTCUSD (Bitcoin / USD) – Second Bearish Flag Formation For Bitcoin
Bitcoin ($BTCUSD +3.22%) second successive bearish flag formation remains in play.
The level of support to watch for $BTCUSD this week remains at $17,500, the lowest level year to date.
$PCCE (Put/Call Ratio Equity) & $VIX (Volatility S&P 500) – Persistence in Reflection of Imminent Major Sell Off Ahead
VIX >30 is assumed to accompany large volatility, resulting from increased uncertainty, risk, and investor fear. VIX <20 generally correspond to stable, stress-free periods in the market. Higher VIX levels equates to more expensive options premium and vice versa for lower VIX level.
The spike level to watch for $PCCE in the last 24 months period is at 1.00. The current reading of 0.858 (-8.95%) remains elevated and poses likelihood and risk of accelerated selling for this week.
Conversely, the CBOE Volatility index ($VIX), also known as Wall Street’s fear gauge, declined to 22.77 (-7.47%).
The weekly build up in momentum of both $PCCE and $VIX is reflecting a major sell off ahead remains imminent for the equities market.
$IEI/$HYG (Credit Spread) – $TNX (10YR Treasury Yield) – Highest Credit Spread Level Since November 2020 registered in June 2022
Market participants are keeping a close watch on credit spreads as one of the better economic signals. Junk bond issuers are perceived to be bigger credit risks, so if economic growth slows or contracts, there will be increased angst that these issuers won’t be able to make good on their interest payments. Hence, a widening high-yield spread is regarded as a leading indicator of difficult economic times which, in turn, often invites a more challenging period for the stock market since difficult economic times translate into weaker earnings prospects.
Credit Spread further edge down to 1.56% (-0.01) after setting a high of 1.62% at the end of June as the volatility in the equity market resumes. This was the highest spread level since November 2020.
The 2-yr note yield dropped nine basis points last week to 2.90% and the 10-yr note yield fell 14 basis points to 2.64%, leading to a further inversion of the 2s10s spread that is seen by many as a harbinger of weak growth and/or a recession.
NAAIM Exposure Index 47.21 (+6.14%)
The NAAIM Exposure Index represents the average exposure to US Equity markets reported by members of the National Association of Active Investment Managers. It provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. The blue line depicts a two-week moving average of the NAAIM managers’ responses.
This week’s NAAIM Exposure Index number is: 47.21
Top Trading Ideas for the Week
$CVE – Energy | Oil & Gas Integrated
blow out quarter from ER yday, posting a record EPS of +0.92 (YoY +940%), and highest sales revenue of 12.95B (YoY +52%)
cleared AVWAP from ATH with imminent golden cross from short term MAs (10v20). a trajectory to resumption of its uptrend pic.twitter.com/yeMfioB3Lm
— Jeff Sun, CFTe (@jeffsuntrading) July 29, 2022
$ARIS – Utilities | Regulated Water
Utilities is the 2nd best performing sector over last 6mths (after Energy). also the only 2 sectors that remains on +ve on past 1 yr$ARIS microcap name, strong U/D Vol Ratio. recapturing $22 ATH looks imminent, for a overhead resistance BO pic.twitter.com/6F31nBB1hn
— Jeff Sun, CFTe (@jeffsuntrading) July 28, 2022
$GTLB – Technology | Software – Application
another tech name; resilient in RS, trading to its rising 10/20 MAs, based at $32 major support since March. have reported stable, increasing qtr sales number since IPO.
currently trading just beneath its IPO VWAP, similar to $DUOL pic.twitter.com/4MKrTK8QMJ
— Jeff Sun, CFTe (@jeffsuntrading) July 8, 2022
