By Pete Biebel, Senior Vice President
The stock market’s gains over the past seven trading sessions have been a welcome change. Not only has the rally lifted both the S&P 500 Index (SPX) and the NASDAQ Composite Index (COMP) above their 50-day moving averages, but it seems to have also lessened the pervasive cloud of gloom that has darkened traders’ spirits over the past few months. The plurality of analysts who were expecting the averages to hit lower lows in the coming months, seems to be fading. Several of the business show talking heads have even suggested that the averages have seen their lows and the market should continue higher from here.
I’m still skeptical. The market was overdue for a rebound, but so far, the nature of the rally still has the look and feel of a bear market bounce. The rally off the low over the past month still hasn’t gotten very far and has been dominated by growth stocks. In other words, the most beaten-up sectors have been the ones with the biggest rallies. Another unsettling feature of recent market action is the tendency for a single news item each day to trigger lopsided moves either up or down. It’s as if someone is pulling a slip of paper from an “Excuse of the Day” hat.
Following on a very strong finish in the prior week, stocks gapped higher last Monday morning. The strong opening was led by a couple Dow Jones Industrial Average (DJIA) component stocks: Boeing Co. (on news of a big order from a major airline) and Goldman Sachs Group Inc. (following its quarterly earnings report). Unfortunately, the averages hit their highs of the day in the opening minutes of trading. They managed to hang near their highs through the morning, but around midday, Apple announced that the company would decrease hiring in the coming year. That’s become a more common refrain over the past couple months. The news proved to be L’excuse du Jour, and triggered selling that continued through the afternoon. By the end of the session the major averages had net losses of nearly 1%. Apple was down more than 2%. The news had a significant negative impact on other Technology sector stocks; the sector ended the day more than 2% below its morning high.
Losses on Monday and Friday bookended three sessions of strong midweek gains. Tuesday was the best day in nearly a month. The apparent excuse that day was an investor survey by a major bank that concluded investor sentiment had reached the capitulation stage and, therefore, a rebound rally was in store. On Wednesday, Netflix reported that it had lost fewer subscribers than expected in the previous quarter. That was enough of a silver-lining excuse to vault the market higher, led by the Technology and Consumer Discretionary sectors. Those sectors led again on Thursday after Tesla reported quarterly results. That company’s shares gained nearly 10% for the day.
The excuse for Friday’s weakness came after the closing bell on Thursday. Snap Inc., the company that owns the Snapchat app, reported that its revenues had increased at a much slower pace than had been expected. That sparked fears that the entire digital-advertising industry could be facing a slowdown. The Communication Services sector fell about 3.5% on Friday, and SNAP stock, which had already declined more than 70% from its 2021 high, ended the session nearly 40% below Thursday’s closing level.
For the week, SPX gained 2.55% and COMP was higher by 3.33%. Two weeks ago, in my most recent article, I suggested that SPX would not encounter much resistance until the 4090 – 4110 area. The index made it into that range late last week before fading to around 3962 Friday. Additional gains over the next couple weeks are not out of the question though the index would encounter significant resistance near the 4100 level. If further declines occur early this week, we’ll want SPX to hold no lower than the 3900 level.
This week’s news calendar has more potential catalysts than a chemistry set. Just over one-third of the companies in the S&P 500 are due to report quarterly earnings this week. The list of 134 expected announcements includes many big-name stocks like GOOGL and MSFT (both on Tuesday), META Platforms (Wednesday), AAPL, AMZN and INTC (Thursday) and CVX and XOM (Friday). On a sector-by-sector basis, the largest percentage increases in earnings are expected in the still-recovering Energy sector, while earnings declines are expected in the Communication Services sector and in Financials.
Mixed in with the earnings announcements are several potentially explosive economic reports. The Durable Goods Orders data will be announced Wednesday morning. The first estimate of second-quarter GDP will be released on Thursday along with the Initial Unemployment Claims numbers. On Wednesday afternoon, the typically volatility-inducing Fed policy statement and press conference may be more of a dud this time. A 75-basis point increase in the target rate is expected. The possibility of a 100-basis point hike, which seemed like a realistic possibility just a week ago, is now less likely.
This big earnings season week of quarterly reports promises to be far more than just a snapshot of recent performance. The glimpses of financial health that the earnings announcements provide should help bring into focus the fitness, or lack thereof, of the overall economy. Beyond just the revenue and income data for the quarter, analysts will zoom in on each company’s guidance for future quarters. They’ll be trying to develop a picture of the degree to which a slowing economy and persistent inflation could impact future performance.
I’ll close with a bit trivia for readers who have made it this far. Some of you recognized this week’s title as a line from a song on the Beatles “Sgt. Pepper’s Lonely Hearts Club Band” album, released 55 years ago. If so, you probably also remember the picture on the cover of the album. The four Beatles were front and center. To their right were four wax-figure Beatles standing next to a wax Sonny Liston. Behind them were dozens of cardboard figures of famous people. The list includes W.C. Fields, Marilyn Monroe, Ghandi, Abbott and Costello, Karl Marx and Albert Einstein. At the last minute they decided to leave out the Hitler cutout. They had earlier chosen to not include Jesus.
| Date | Report | Previous | Consensus |
| Monday 7/25/2022 | Chicago Fed National Activity Index, June | 0.01 | 0.05 |
| Dallas Fed Manufacturing Survey, July | -17.7 | -22.0 | |
| Tuesday 7/26/2022 | Case-Shiller Home Price Index, May, M/M | +1.8% | +1.6% |
| Consumer Confidence, July | 98.7 | 96.8 | |
| New Home Sales, June, SAAR | 696K | 664K | |
| Richmond Fed Manufacturing Index, July | -19 | -10 | |
| Wednesday 7/27/2022 | Durable Goods Orders, June, M/M | +0.8% | -0.5% |
| Durable Goods Orders ex-Transportation, June, M/M | +0.7% | +0.2% | |
| International Trade, Trade Deficit, June | $104.0B | $103.2B | |
| Pending Home Sales, June, M/M | +0.7% | -1.0% | |
| Fed Policy Announcement and Press Conference | +9.7% | +9.4% | |
| Thursday 7/28/2022 | GDP, Q2, Q/Q Annual Rate | -1.6% | +0.5% |
| Initial Jobless Claims | 251K | 249K | |
| Continuing Claims | 1,384K | 1,380K | |
| Friday 7/29/2022 | Personal Income, June, M/M | +0.5% | +0.5% |
| Personal Consumption Expenditures, June, M/M | +0.2% | +0.9% | |
| PCE Price Index, Y/Y | +6.3% | +6.7% | |
| Chicago PMI, July | 56.0 | 56.0 | |
| Consumer Sentiment, July | 51.1 | 51.1 |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Weekly Market Commentary/Market