Stock Market Outlook
For The Week Of August 13th = Uptrend

ADX Directional Indicators: Uptrend
Price & Volume Action: Uptrend
Elliott Wave Analysis: Mixed

The S&P500 ($SPX) fell 0.3% last week.  As of Friday's close, the index was 0.5% and 8.5% above the 50 and 200 day moving averages, respectively.

2023-08-13-SPX Trendline Analysis - Daily

The ADX narrowly avoided a bearish signal last week (Tuesday & Wednesday).

Price/volume action was uneventful last week, as trading volume faded throughout the week.  The signal remains in an uptrend for now, with the index posed to test the 50-day moving average over the next week or two.

Elliott Wave remains mixed; both counts continue to work through their first down wave, after completing the rally on August 27 at 4607.  Key support and resistance levels remain unchanged at 4169 and 4632.

COMMENTARY

Based on the current state of the 3 market outlook signals, I'm expecting a period of choppy, sideways price action (i.e. consolidation).  Watch trading volume for signs of institutional buying and/or selling.

Inflation increased slight in July.  The Consumer Price Index (CPI) rose +3.2% y/y,  which was a slight increase from June's 3.0% y/y increase.  Core CPI (CPI less food & energy) rose 4.7% y/y.  The Producer Price Index (PPI) was up +0.8% Y/Y, which was a slight increase from Junes +0.2% Y/Y reading.  Core PPI (PPI less food, energy, and trade services) rose +2.7% y/y.

Earnings season is winding down for the S&P500, with 90% of companies reporting 2nd quarter earnings. Per Bloomberg:

• Sales growth was up +0.4% y/y
• Earnings growth was down -8.3% y/y

That's the 3rd straight quarter of negative earnings growth (i.e. that pesky earnings recession mentioned in previous posts).   Many investors are surprised by the EPS decline, since financial media has painted a different picture.  Those headlines are focused on performance versus expectations, in which case ~80% of the earnings reports beat analysts EPS estimates.

How is this possible?   Because analysts have lowered their estimates during the year, based on company guidance.  Then, companies report better than expected earnings, with help from one-time adjustments / non-GAAP EPS calculations.

Maybe that's why Factset recently reported: "S&P 500 Companies See Largest Negative Price Reaction to Positive EPS Surprises Since 2011".

Analysts now expect 3rd quarter earnings growth to break-even (0%), and then jump to +8% y/y in the 4th quarter.  The increase is not unexpected, since analysts estimate year-end S&P500 targets based on valuation (price/earnings multiples).  EPS during the first half of the year underperformed, so EPS for the second half of the year must overperform in order for the S&P500 to reach analysts' target levels.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don't, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

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