The Momentum Trade Is In Full Swing

Can momentum keep up with negative earnings growth?

Author

Mark Roussin
July 17, 2023

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Market Talk ⏪

We always begin with 5 important topics from the week prior and/or related to the week ahead for investors to be mindful of.

  1. Ride The Momentum. 2023 has gotten off to a blazing start so far in 2023, and July has continued that. The DJIA was up 2.29% on the week, and that was good enough to be the indexes best week since March. Technology continues to show no signs of slowdown and many are beginning to believe that a “soft landing” is largely possible here in the US. High valuations for both individual stocks and the S&P 500 has not slowed down this market yet.

  2. CPI showing signs of improvement. Last Wednesday, investors got the latest inflation report when the June CPI report was released showing a slowdown in inflation. CPI grew 0.2% month over month in June and was up 3% from the same period prior year. 3% inflation is the lowest level investors have seen since March 2021. Core CPI, which excludes higher volatility categories of Food and Energy, rose 0.2% on the month and 4.8% year over year. The core CPI metric is closely watched by the Federal Reserve and it is their goal to bring it back down to 2%.

  3. Q2 earnings expected to be weak. Many investors are starting to believe that a soft landing by the Fed is entirely possible now. The Federal Reserve is likely to hike rates again in their July meeting, but after that, they could be done for a prolonged period of time. However, Q2 is still expected to be impacted pretty negatively as all the interest rate hikes take their toll. According to FactSet, the S&P 500 earnings forecast expected roughly 9% earnings decline during the quarter. Are earnings bad or have estimates just come way down is the main question.

  4. Amazon Prime Day saw a record year. Amazon’s 2-day Prime Day saw record sales, as revenues grew by nearly $6.4 billion or 6% from a year ago, and that was all on the FIRST day. According to Adobe Analytics data, consumers spend $12.7 billion during the two-day event. Even large ticket items like appliances saw a 37% incre YoY with the toy category seeing revenues jump nearly 30%. The Buy Now Pay Later option also helped fuel sales this year, as 6.5% of orders took advantage of this option. Rates continue to rise and inflation still an issue, although improving, it is more likely than not that consumers will be extra focused on deals this year during the holiday season.

  5. First loan forgiveness plan didn’t work, why not try again. Last week, the current administration announced a new deal, roughly 1/10th the size of the original plan, to forgive $39 billion in US student debt. This plan is expected to impact more than 804,000 borrowers and in order to be eligible for forgiveness, the borrower will have needed to make payments for either 20 or 25 years. The program is capped more so to help lower income families.

Deep Dive 📰

Become a PREMIUM subscriber today for LESS than $1 per day and take your investing to the next level. Premium subscribers receive the following:

  • Monthly Portfolio Updates

  • 2 Individual Stock Deep Dives Per Month

  • Valuation Dashboard

  • Subscriber only content

Premium subscribers will soon be receiving our first DEEP DIVE for the month of July.

Go PREMIUM today!

US Markets 🇺🇸

Here is a performance summary for US Equities:

Here is a look at US Treasuries:

The Fear & Greed Index measures market sentiment based on the following seven factors: put/call ratios, junk bond demand, stock price breadth, market volatility, stock price strength, safe-haven demand, and market momentum.

Although all the major indexes were higher on the week, the Fear & Greed Index did not move all that much as it remained in Extreme Greed territory. Currently, the index has a reading of 80, which is in line with the prior week reading of 78.

Earnings on Deck 💰

Q2 earnings season is officially in full swing as we embark on the first FULL week of earnings reports. Here are the companies reporting this week:

Dividend News 📝

Here are some notable analyst upgrade/downgrades from the previous week:

  • JMP upgrades Charles Schwab to market outperform from market perform

  • Argus upgrades Generac to buy from hold

  • Jefferies upgrades JPMorgan Chase to buy from hold

  • Bank of America upgrades 3M to neutral from underperform

  • Bank of America upgrades U.S. Bancorp to buy from neutral

  • Loop upgrades TJX Companies to buy from hold

  • Citi downgrades JPMorgan to neutral from buy

  • Bank of America downgrades Cisco to neutral from buy

  • Northcoast upgrades Domino’s to buy from neutral

  • JPMorgan downgrades AT&T to neutral from overweight

  • Wells Fargo downgrades Progressive to equal weight from overweight

  • JPMorgan downgrades Alcoa to neutral from overweight

Economic Data This Week 📆

Monday

  • Empire State Index (July)

Tuesday

  • Retail sales (June)

  • Industrial production (June)

  • NAHB housing market index (July)

Wednesday

  • Housing starts (June)

Thursday

  • Initial jobless claims (Week ended July 15)

  • Existing home sales (June)

Friday

  • None

Other Resources 📺

If you have not done so yet, check out my growing YouTube community of more than 29,000 like-minded investors where I publish weekly videos focused on building wealth through investing.

Here is the latest video I released: 3 Cheap Dividend Aristocrats To Boost Your Returns

Here is another video I put out last week: 3 dividend Stocks To Buy For The Rest of 2023

Here are a few others of my latest videos:

If you enjoyed the newsletter, leave a LIKE and COMMENT down below. Also, if there is someone that could benefit from this newsletter, consider sharing it.

Have questions? You can email me directly at [email protected].

Happy Investing!

Mark

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