by Ben Weiss, for the Call to Leap Team
Happy May, everyone! We made it through the bulk of earnings season. Phew! Like Will Smith and Jeff Goldblum at the end of Independence Day, the market appears to be walking away from a few big weeks of earnings and economic data triumphantly, with maybe a bit of wreckage in the rear view mirror. 😉
Following a rocky start to April, the market has shown upward strength the past 2 weeks. We've now received earnings reports from all of the Magnificent 7 (except for NVDA who reports in late May), we heard from the Federal Reserve and their outlook on lower interest rates, and we received April jobs data. And through it all, the market appears to be digesting the news fairly positively.
As always, we'll be careful and thoughtful in our investing outlook moving forward. Historically, May to October have been lower-performing months for the market, lending to the old adage "sell in May and go away." At CTL, Steve and I follow the dollar cost average approach and try not to "time the market" and its ups and downs, however we shouldn't be surprised to see a bit of slow down ahead. Overall, I'm with many investors in being bullish for the remainder of 2024, but we'll pay attention to the market trends and use the various tools in our options trading toolbox as needed.
Whether the market moves up, down, or sideways, we're here for each other in this wonderful CTL community. We got this, Wealth Builders! Now, let's take a look at what happened this week and what's coming up...
The market this week
For the second week in a row, we saw broad gains across the market, with many but not all of the Magnificent 7 notching gains. While GOOGL took a step back from its huge post-earnings gains last week, AMZN, NVDA, and especially AAPL advanced significantly. Following Apple's earnings announcement, the stock had its best day since 2022, finally closing above the $180 level for the first time since late February.
While AAPL is just one stock, its size in terms of market capitalization (the total value of all AAPL shares is nearly $3 trillion!) can cause the rest of the market to move with it, like friction. After all, nearly 30% of the S&P 500's market cap and over 40% of the Nasdaq's market cap are made up just from the Magnificent 7. That's a lot of weight at the top!
By the numbers, the S&P 500 (+0.27%), DOW 30 (+1.03%), Nasdaq (+0.93%), Russell 2000 (+1.53%) all posted modest gains for the week, capping off mostly net neutral results for the past month of April. Let's see if this recent bullish rebound continues or stalls out as we step into May and the summer months.
To the charts
SPY
This week's price action picked up where last week's left off. If you recall, SPY had just broken out above the red downward sloping channel, and this week appeared to begin to form a new upward sloping channel (in green). This new trend is not yet well established, needing at least a few more days to confirm or reject it, however we did see new higher highs and higher lows this week—a solid bullish indicator.
In this chart, I've added the Moving Average Convergence/Divergence (MACD) indicator underneath, if you want to get a little nerdy with me. The blue MACD line bottomed out as we theorized it would and actually crossed above the orange signal line this week (inside the yellow circle), adding more fuel to my theory for a potentially bullish trend reversal in progress. I'll be looking for the MACD's 3rd bullish feature to occur for further confirmation: the blue MACD line to cross north over the horizontal "zero" line. Need a refresher on interpreting the MACD indicator?
QQQ
Like on the daily chart for SPY, we saw signs of a trend reversal for QQQ too, including finding clear support at the $412 level, higher highs and higher lows, and bullish features on the MACD indicator. Notably, we see QQQ bumping up against the $435 level which as been both a popular support and resistance level dating back to February. Often times support lines later turn into resistance lines, and vice versa. I'm curious to see if QQQ has enough bullish momentum to push through this resistance level or if we may see the price move back down into the middle of the new green upward sloping channel.
In the news
No news is good news... The Federal Open Markets Committee (FOMC) in the US Federal Reserve (the "Fed") met this week to discuss progress on tackling inflation and how to best proceed with lower interest rates. With recent higher-than-expected consumer and wholesale price data, a robust labor market, and a weak US Gross Domestic Product (GDP) reading last week, many investors did not have high hopes for Chairman Jerome Powell's comments. In fact, many investors were anticipating the possibility of Powell forecasting one or more interest rate hikes this year, moving in the opposite direction of what stock market investors want to see. Well, the committee announced no change to plans at this time, including no forecasted rate hikes, which was music to the market's ears.
Wait, bad news is good new too?... We also received April jobs data on Friday. Compared to the expected 240,000 new jobs, the US economy added only 175,000 jobs last month. At first pass, you might think fewer jobs is a bad thing. More jobs is more better for the economy, right? Well, yes, job growth is positive, but there is such a thing as too much job growth, indicating a hotter economy. And remember, the Fed is trying to cool inflation and the economy while avoiding recession. This lower-than-expecting jobs number can actually be interpreted as a positive sign towards cooling.
For more context, the US is still within a historic excellent job market with unemployment under 4% for over 2 years, the longest such run in over 40 years. Maybe even more encouraging, wages increased more than inflation last month, meaning Americans' take-home pay will begin to afford more purchasing power at the grocery store.
Below, you can really see how job growth is still trucking along nicely but has been steadily cooling since the days of hyperinflation back around 2021. Remember, careful cooling is a good thing. It means the Fed may lower interest rates soon than later which should boost the stock market but also make it cheaper to get loans for cars and houses!
You earned it!... We saw earnings announcements from major companies this week including SBUX, AMZN, and AAPL.
Getting the bad news out of the way first, SBUX had a rough earnings day. The company announced significant headwinds domestically and abroad, including fewer visits from its regular customers. This is understandable, given how a relatively expensive coffee treat could be viewed by many on a budget as an unnecessary luxury expense versus basic groceries, gas, and other regular bills. The stock dropped about 18% following misses on earnings per share (EPS) by 14.6% below expectations and revenue by 6.1% below. The stock is now approaching the $70 level last tested in June 2022.
AMZN had a much better earnings report, beating expectations for both EPS by 16.4% and revenue by 0.5%, causing the stock to push higher by 7.5% to close the week. Advertising was the company's strongest component, growing by 24% in Q1 to outpace retail and AWS cloud services. With a big jump in operating income, the company's cost-cutting efforts seem to be paying off.
AAPL also captured bullish interest from investors following their earnings release. The company narrowly beat expectations for EPS by 1.7% and revenue by 0.4%, however they announced a $110 billion stock buyback, the largest ever for Apple, which comes in addition to last year's $90 billion buyback. Despite reporting a decline in iPhone sales by 10% compared to this time last year, the stock rallied nearly 6% to break out of its recent neutral-to-bearish trend.
We made it through the bulk of earnings season—well done, everyone!
You got this! Stay disciplined, pay yourself first, and always invest in your greatest asset—yourself. As always, let us know if you have any questions. 🙌🏻
-Steve & Ben
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