Good Friday evening to all of you here on r/stocks! I hope everyone on this sub made out pretty nicely in the market this past week, and are ready for the new trading week ahead. 🙂
Here is everything you need to know to get you ready for the trading week beginning April 4th, 2022.
Markets will be looking for clues from the Fed ahead, as historically strong month gets underway – (Source)
The stock market is heading into what promises to be a volatile second quarter, but April is traditionally the best month of the year for stocks.
The major indices were higher in March, but they turned in a weak performance for the first quarter, the worst since the pandemic. Investors have been worried about rising interest rates, the war in Ukraine and inflation, which was made even worse by disruptions in commodities exports from both Russia and Ukraine.
Stocks are typically higher in April, and it is historically the best month of the year for the S&P 500. The S&P has been higher 70% of the time and has gained an average 1.7% in all Aprils since World War II, according to Sam Stovall, chief investment strategist at CFRA. For all months, the S&P averaged a gain of 0.7%.
The S&P 500 was up 3.6% in March, and Stovall said the rally could continue. “I think we get back to breakeven, but then I wouldn’t be surprised if we go through another pullback or correction before we have an end of year rally,” he said.
Market focus in the week ahead will remain squarely on developments around the Ukraine war and on the Federal Reserve. The Fed on Wednesday is scheduled to release minutes from its March meeting, where it raised interest rates for the first time since 2018.
There are also a handful of Fed speakers, including Fed Governor Lael Brainard, who speaks Tuesday.
Greg Faranello, AmeriVet Securities head of U.S. rates, said the Fed minutes could be the highlight of the week since the central bank is likely to provide more detail on its plans to shrink its balance sheet. The Fed has nearly $9 trillion in securities on its balance sheet, and a reduction of those holdings would be another step to tighten policy.
“The market is curious. They’re going to be looking for some clues in terms of how quickly, how big, what the caps look like,” said Faranello.
The economic data calendar is light, with factory orders Monday, international trade and ISM services Tuesday and wholesale trade Friday.
Traders will also be watching for any comments from companies ahead of the first-quarter earnings reporting season, which starts in mid-April.
“The first-quarter earnings have actually been improving in the last month, so that’s encouraging,” said Stovall.
Farewell to first quarter
The Dow was off 4.6% for the first quarter, while the S&P 500 was down 5%. The worst performer by far was the Nasdaq, down 9.1%. In the past week, stocks were barely changed. The Dow was down 0.1%, while the S&P was up 0.1%. The Nasdaq was up 0.7%.
Interest rates also moved dramatically during the quarter, with the benchmark 10-year Treasury yield temporarily touching a high of 2.55% in the past week, after starting the quarter at 1.51%.
On Friday, the 10-year was yielding 2.37%, while the two-year yield, which most reflects Fed policy, was at 2.45%. The two-year was yielding 0.73% at the beginning of the year.
Faranello said bond yields can keep going higher on inflation concerns, but they could consolidate before another big move.
“I think the market is looking for a new catalyst here,” he said. “I just think the first quarter has been about repricing the market, and we’ve done that…The Fed came out very hawkish. We made made a dramatic repricing. Now, we need to see more data to see how this is going to evolve in the second quarter.”
Stovall said the S&P 500′s first-quarter performance is one of the 15 worst first quarters, going back to 1945. After those weak quarters, down 3.8% or more, the second quarter was better on average. This year’s first-quarter decline was tied with 1994, which had the 12th worst first quarter.
After those 15 weak first quarters, “we actually climbed 4.8% in the second quarter and rose in price two out of every three times,” he said. But for the full year, the S&P 500 gained just 40% of the time, and was down an average 2% in those years.
But this year is a midterm election year, and in those years the second and third quarters are typically the weakest. “Of those 15 worst quarters, five of them were midterm election years, and of those five, the second quarter was up an average 1%, and it rose in price only 40% of the time,” Stovall said.
Stovall said the market could be higher in the second quarter, but it will face headwinds. “Oil prices are likely to remain up. Interest rates are certainly not coming down,” he said, adding geopolitical pressures are likely to remain. “I see the possibility of a 1% gain. We could probably eke out something good.”
Stocks were held hostage by rising and volatile oil prices in the first quarter, as the world scrambled to make up for Russia’s export barrels. Many customers refused to buy Russian oil for fear of running afoul of financial sanctions on Russia’s financial system.
After wild swings both higher and lower, West Texas Intermediate oil futures gained 39% in the first quarter, the eighth positive quarter in a row and its best first quarter since 1999. WTI was just under $100 per barrel Friday afternoon.
Choppy, volatile market
Joe Quinlan, head of CIO Market Strategy for Merrill and Bank of America Private Bank, said he is constructive on the market heading into the second quarter, but he sees some rough spots ahead.
“We’ve got to work through the inflation problem, and the Fed catching up to the expectations of the market,” Quinlan said. “We’ve got to re-anchor inflation. It’s going to be a choppy, volatile year. We’re tilting more toward hard assets, whether it’s commodities, energy and natural gas.”
Quinlan said he leans towards equities over fixed income, which has also been unusually volatile. “We’re using equities as a hedge against inflation,” he said. “Within that framework is more hard assets, fuels, agriculture complex in general and metals and minerals.”
In the second quarter, the stock market will continue to adjust to an aggressive Federal Reserve against the backdrop of what should have been a solid economy. With 431,000 payrolls added in March, jobs data continues to be strong, but there is a fear the Fed will raise interest rates too quickly, derailing the economy and spinning it into recession.
Traders in the futures market expect the Fed will increase its fire power at its next meeting in early May, hiking interest rates by 50 basis points, or a half-percent. The Fed’s first rate increase was a quarter-point at its March meeting.
The market is pricing in the equivalent of eight quarter-point hikes, and Treasury yields have moved higher with stunning speed as market expectations for interest rates shifted. The two-year Treasury yield rose above the 10-year yield, or inverted this past week, for the first time since 2019. That is viewed by the market as a warning sign for a recession.
Fed officials have signaled they want to move to trim the balance sheet soon. Kansas City Fed President Esther George this past week said the Fed’s balance sheet will need to decline significantly. She said the Fed’s holdings of Treasurys may have depressed the 10-year yield, causing the yield curve to invert.
Faranello said interest rates could still head higher on inflation worries, but rates could consolidate after their recent run higher. The yield curve could also remain inverted.
“We can stay like this for a year-and-a-half. Everyone’s screaming a recession is coming…I don’t think the yield curve is telling us a recession is just about to happen,” Faranello said.
This past week saw the following moves in the S&P:
(CLICK HERE FOR THE FULL S&P TREE MAP FOR THE PAST WEEK!)
S&P Sectors for this past week:
(CLICK HERE FOR THE S&P SECTORS FOR THE PAST WEEK!)
Major Indices for this past week:
(CLICK HERE FOR THE MAJOR INDICES FOR THE PAST WEEK!)
Major Futures Markets as of Friday's close:
(CLICK HERE FOR THE MAJOR FUTURES INDICES AS OF FRIDAY!)
Economic Calendar for the Week Ahead:
(CLICK HERE FOR THE FULL ECONOMIC CALENDAR FOR THE WEEK AHEAD!)
Percentage Changes for the Major Indices, WTD, MTD, QTD, YTD as of Friday's close:
(CLICK HERE FOR THE CHART!)
S&P Sectors for the Past Week:
(CLICK HERE FOR THE CHART!)
Major Indices Pullback/Correction Levels as of Friday's close:
(CLICK HERE FOR THE CHART!)
Major Indices Rally Levels as of Friday's close:
(CLICK HERE FOR THE CHART!)
Most Anticipated Earnings Releases for this week:
([CLICK HERE FOR THE CHART!]())
(T.B.A. THIS WEEKEND.)
Here are the upcoming IPO's for this week:
(CLICK HERE FOR THE CHART!)
Friday's Stock Analyst Upgrades & Downgrades:
(CLICK HERE FOR THE CHART LINK #1!)
(CLICK HERE FOR THE CHART LINK #2!)
(CLICK HERE FOR THE CHART LINK #3!)
Here Comes the Best Month of the Year
After one of the worst starts to a year ever for stocks, March has seen a huge bounce. Incredibly, the S&P 500 Index is only about 4% away from new all-time highs. The big question is can the near-term strength continue?
“The good news is stocks really appear to love April. Not only is it the best month on average since 1950, but it has also been higher an incredible 15 of the past 16 years as well,” explained LPL Financial Chief Market Strategist Ryan Detrick.
As shown in the LPL Chart of the Day, the S&P 500 has indeed closed green in April in 15 of the past 16 years.
(CLICK HERE FOR THE CHART!)
Taking a deeper look at April reveals that it’s not just the best month for stocks since 1950—it’s also the best month in the past 20 years and the second best month in the past decade. If there is one flaw, it is that in a midterm year it ranks only seventh and is barely positive.
(CLICK HERE FOR THE CHART!)
Asset Class Performance by Weekday
As Vladimir Lenin once wrote “There are decades where nothing happens; and there are weeks where decades happen.” For investors, each passing day of late has felt like a month, as Powell's Pivot, the Ukrainian conflict, rampant inflation, supply chain constraints, and COVID have caused rapid shifts in investor sentiment, leading to heightened volatility. With each day feeling like an eternity, we decided to look into the average performance by weekday to provide you with insights into trading patterns based on the day of the week.
The last twelve months have seen a divergence in performance from the norms of the last 30 years. On a trailing 12-month basis, the S&P 500 has performed poorly on Mondays and Tuesdays before gaining steam from Wednesday through Friday. This diverges from the patterns seen over the last thirty years, in which Thursday and Friday struggled relative to the performance over the first three trading days of the week. This year, oil has averaged gains on every day of the week, but the strongest performance has occurred early in the week, which is interesting as Monday and Tuesday have tended to be the worst days of the week for oil over the last 30 years. Bonds have performed poorly in the beginning of the week over the last twelve months but have partially recovered in the last two trading days. Over the long run, the safe asset has traded narrowly with only Wednesdays averaging a loss. Tuesdays and Thursdays have been strong days for the US Dollar over the last twelve months, but these days tend to result in flat to negative performance when looked at over the last 30 years.
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
(CLICK HERE FOR THE CHART!)
Below we summarize the cumulative performance by weekday for the S&P 500 over the last 30 years. As you can see, Tuesday has been the best performing day by far, booking performance gains of 160.5%. Wednesday has posted a cumulative gain of 83.6%, which lands the day in second place. Friday and Thursday have been the weakest days, booking a cumulative gain of just 27.4% and 28.2%, respectively. Monday lands in the middle, recording a cumulative gain of 41.3%. As outlined above, the recent shift in weekday performance deviates from the norms of the last 30 years as investors have come out of the weekend with fears but concluded the week with optimism.
(CLICK HERE FOR THE CHART!)
Strong Performance at the Tail Ends of Breadth
While the index turned lower today on weaker breadth, the recent rally for the S&P 500 has come on strong breadth resulting in the 10-day advance/decline line to surge to some of the highest readings on record. Monday and Tuesday saw 99th percentile readings in the 10-day A/D line and even after the decline today, the current reading remains in the 96th percentile. At Monday's high, the 10-day AD line reached the most elevated level since October 2020. On a sector level, in the past week Financials, Health Care, Materials, Real Estate, and Tech also all saw 99th percentile readings in their own 10-day advance-decline lines.
(CLICK HERE FOR THE CHART!)
In the matrix below, we show the average forward performance of the S&P 500 broken down by the percentile range that the index's 10-day AD line is in. Generally, lower readings in the 10-day AD line have been followed by stronger returns whereas higher readings have been followed by weaker returns. That is, except for the most elevated readings. Readings in the upper decile have actually been followed by more consistently positive and stronger than normal average returns for the S&P 500. In other words, strong breadth is typically a more negative signal for the S&P 500 going forward, but an extremely strong breadth reading has actually been positive.
(CLICK HERE FOR THE CHART!)
Down Q1 Midterm Years & Bear Market Bottoms
As we enter the last month of the Best Six Months, the market logged its first down quarter in two years since the beginning of the pandemic. Going back to 1930 when our S&P 500 data begins Q1 was positive 55 years and negative 37 times over the 92-year span. Overall, years that advanced in Q1 were up 46 of the 55 years or 83.6% of the time with an average gain of 13.2% for S&P 500. Years when Q1 was down, were positive only 16 of the 37 years or 43.2% of the time for an average loss of -0.1%.
What jumped out at us were the midterm years that had losing first quarters. In the table we compiled here, the events during these years have an eerie resonance to what’s happening today in 2022. War, conflict, inflation, recession, and rate hikes were common themes in these midterm years. Only three of these 10 midterm years had sizable gains: 1938 (War in Europe), 1942 (WWII) and 1982 (Secular Bull). Losses carried over into Q2 in all but 3 years: 1938, 1942 and 2018. Third quarters rebounded in all but three years: 1966 (Vietnam), 1974 (Oil Embargo/Watergate) and 2002 (Iraq). The only real Q4 blemish was 2018 when the Fed hiked rates too briskly.
In general, after a down midterm Q1, losses tended to carry over into Q2 and the market began to find its footing in Q3 and rally into Q4. Protracted crises in 1962, 1966, 1970, 1974, and 2002 delivered the most negative results though all had significant bear market bottoms. At the Q1 crossroads in 2022 we are faced with similar conditions. Persistent hyperinflation (Jeff’s large iced black coffee is up 29% in the last month from $3.02 to $3.89), a rising rate environment that’s stoking inverted yield curve/recession fears, the brutal war in Ukraine and the new Cold War 2.0 with Russia are threatening a bear market on the backdrop of the heightened volatility we have been warning of since our Annual Forecast in December.
(CLICK HERE FOR THE CHART!)
Bears Go Back Into Hibernation
The last couple weeks of the first quarter have seen equities reverse a sizable portion of this year's losses and sentiment has rebounded in sync, though, bullish sentiment turned slightly lower this week in spite of the S&P 500's move higher. From the weekly AAII sentiment survey, bullish sentiment shed 0.9 percentage points coming in at 31.9%. Even after that decline, the current level of reported optimism remains above all others (outside of last week) since early January, but bullish sentiment still would need to rise another 6 percentage points to move back up to its historical average.
(CLICK HERE FOR THE CHART!)
While more investors are not reporting much optimism, fewer are outright bearish. Bearish sentiment fell for a second week in a row falling another 7.9 percentage points to 27.5%. With a little over a quarter of respondents reporting as bearish, this sentiment reading is at the lowest level since November. That is also now the biggest two-week decline in bearish sentiment (22.3 percentage points) since November 2009 when it had fallen 23.74 percentage points in a two-week span.
(CLICK HERE FOR THE CHART!)
Finally, we would note that given bearish sentiment has plummeted at a historic rate without much of an increase in bullish sentiment, neutral sentiment has picked up the difference. That reading clipped above 40% this week for the highest level since January 2020.
(CLICK HERE FOR THE CHART!)
Other sentiment surveys like the Investors Intelligence one and NAAIM's Exposure Index have also pivoted more bullish this week. As a result, our sentiment composite is close to zero meaning across these three indicators, sentiment is now only just slightly below the historical average.
(CLICK HERE FOR THE CHART!)
Here are the most notable companies reporting earnings in this upcoming trading week ahead-
- (T.B.A. THIS WEEKEND.)
([CLICK HERE FOR NEXT WEEK'S MOST NOTABLE EARNINGS RELEASES!]())
(T.B.A. THIS WEEKEND.)
([CLICK HERE FOR NEXT WEEK'S HIGHEST VOLATILITY EARNINGS RELEASES!]())
(T.B.A. THIS WEEKEND.)
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 4.4.22 Before Market Open:
(CLICK HERE FOR MONDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Monday 4.4.22 After Market Close:
(CLICK HERE FOR MONDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 4.5.22 Before Market Open:
(CLICK HERE FOR TUESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Tuesday 4.5.22 After Market Close:
(CLICK HERE FOR TUESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 4.6.22 Before Market Open:
(CLICK HERE FOR WEDNESDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Wednesday 4.6.22 After Market Close:
(CLICK HERE FOR WEDNESDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 4.7.22 Before Market Open:
(CLICK HERE FOR THURSDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES!)
Thursday 4.7.22 After Market Close:
(CLICK HERE FOR THURSDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!)
Friday 4.8.22 Before Market Open:
(CLICK HERE FOR FRIDAY'S PRE-MARKET EARNINGS TIME & ESTIMATES LINK!)
Friday 4.8.22 After Market Close:
([CLICK HERE FOR FRIDAY'S AFTER-MARKET EARNINGS TIME & ESTIMATES!]())
(NONE.)
(T.B.A. THIS WEEKEND.)
(T.B.A. THIS WEEKEND.) (T.B.A. THIS WEEKEND.).
(CLICK HERE FOR THE CHART!)
DISCUSS!
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/stocks. 🙂
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