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 July 10th, 2023.

Stocks tumble on Friday, notching weekly losses, as traders' rate hike fears return: Live updates - (Source)

Stocks fell on Friday, and finished lower for the week, as Wall Street struggled to shake off fears that the Federal Reserve may start hiking rates again later this month.

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The S&P 500 lost 0.29% to end at 4,398.95, while the Nasdaq Composite dipped 0.13% to close at 13,660.72. The Dow Jones Industrial Average dropped 187.38 points, or 0.55%, to settle at 33,734.88.

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All three major averages capped a losing week. The S&P dropped 1.16%, while the Nasdaq declined 0.92%. The Dow shed 1.96% for its worst weekly performance since March.

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The Labor Department’s June jobs report showed payrolls increased less than expected, cooling down from May. Nonfarm payrolls rose by 209,000, while the unemployment rate came in at 3.6%. Economists polled by Dow Jones had anticipated 240,000 positions added and a similar jobless level.

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But parts of the report, including stronger-than-expected wage numbers, heightened fears that the central bank may have reason to resume hiking later this month. Average hourly earnings increased by 0.4% in June and 4.4% from a year ago. Meanwhile, the unemployment rate declined from 3.7% in May.

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“It’s kind of a mixed picture today,” said Truist’s Keith Lerner. “It’s good news that the economy is not falling apart, it’s still chugging along, but you still have these wage pressures that are going to keep the Fed likely to raise rates at the end of the month.”

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Near term, Lerner said equities are ripe for a pullback following a big June and second quarter. This could lead to consolidation and choppy action as markets head into earnings season.

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Following Friday’s big data release, traders kept their bets on a resumption in hiking later this month, pricing in a 92% chance of a quarter-point hike on July 26. Those are about the same odds as a day ago, according to CME Group’s FedWatch tool. Policymakers indicated at their June gathering that two more rate hikes could be ahead in 2023.

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!)

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!)

Stellar NASDAQ 1st Half Dampens July and Q3 Performance

(CLICK HERE FOR THE CHART!)

NASDAQ finished the first half of 2023 with a stellar 31.7% gain. This is NASDAQ’s third best first half ever. Only 1975 and 1983 were better. In the following table we compiled all years since 1971 when NASDAQ was up 20% or more in the first half. Reviewing the table, we observed only two times out of the past eleven where the second half of the year was better than the first half (1999 and 2003). July and Q3 were also below average following a 20%+ first half gain while Q4 was better than average.

This reinforces our existing tepid outlook for Q3. Today’s much stronger than anticipated jobs data has increased expectations for another Fed interest rate hike and added more uncertainty as to when the Fed will eventually pause. Increasing uncertainty is likely to lead to more volatility and a sideways to possibly lower market during the historically weak third quarter.

Big Picture: The Economy is Normalizing

We started this year discussing how the economy has been at the “edge of normal” in our 2023 outlook. The good news is that we have slowly but surely moved towards normal since then, even in the face of a banking crisis and debt ceiling drama. The “soft” economic data from sentiment surveys have been poor, but the “hard” data that measure actual employment, sales, and production, have painted a much brighter picture.

We discussed last month how we combine a lot of the economic data into our own proprietary leading economic index (LEI), which we produce for 30 countries around the world, each one custom-built to capture the dynamics of those economies. The individual country LEIs are also subsequently rolled up into a global index to give us a picture of the global economy. The idea is to give us an early warning signal about economic turning points. Simply put, it tells us what the economy is doing today and what it is likely to do in the near future.

For example, our index for the U.S. includes 20+ components, including consumer-related indicators (which make up 50% of the index), housing activity, business and manufacturing activity, as well as sentiment and financial markets data. This contrasts with other popular LEIs, which are premised on the fact that the manufacturing sector and business activity/sentiment are leading indicators of the economy. This worked well in the past but is probably not indicative of what’s happening in the economy right now.

Right now, our LEI suggests the US economy is growing along trend, or slightly above it. The economic picture looks even better than it did at the end of 2022. Six months ago, the risk of recession was higher, though even then, the LEI didn’t say that we were in a recession, or even very close to one.

(CLICK HERE FOR THE CHART!)

However, we’re seeing some interesting dynamics under the hood.

2022 Headwinds are Fading

As I mentioned above, our LEI has been consistently saying that the U.S. economy is not in a recession. That was almost entirely thanks to a resilient consumer, with strong employment gains powering incomes and consumption. Pushing against this was an aggressive Federal Reserve and tighter financial conditions. Consequently, the sector that took the biggest hit last year was housing, followed by a slowdown in business spending and manufacturing activity.

But a turnaround looks to be happening now.

As you can see below, the LEI has been rebounding over the last few months. That’s come on the back of declining headwinds from housing (yellow), business/manufacturing activity (green), and financial conditions.

(CLICK HERE FOR THE CHART!)

In fact, housing has moved to being a positive contributor! We’ve written about how why we believe housing will no longer be a drag on the economy after 8 straight quarters of pulling GDP growth lower. Even business activity is exerting a lower drag on the economy – we just wrote last week about how investment has been rising recently, hopefully signaling a bottom.

Financial conditions appear to be easing, especially with the Fed moderating the pace of rate hikes and interest rates inching close to their terminal level for the cycle.

Most importantly, consumption remains positive, though less so than a few months ago. This is not really a concern in my opinion (at least, not yet), as it simply indicates that consumption trends are normalizing. The latest contribution from consumption to our LEI is equivalent to its pre-pandemic contributions.

Ultimately, the big picture is that the economy looks to be finally normalizing after a few years of being whipped around by the pandemic, and its after-effects.

Factory Orders Go Negative

The last 24 hours have been rough for economic data both in the US and around the world as most indicators released have been weaker than expected. It started with weaker-than-expected PMI readings for the services sector in China but has since spread to weaker PMI readings for most major economies in the Eurozone as well. Here in the US, PMI data on the services sector will not be forthcoming until tomorrow morning, but Factory Orders released this morning were a big miss. At the headline level, orders for the month of May increased 0.3% which was a half percentage point below consensus expectations. Not only that but April’s reading was also revised down from growth of 0.4% down to 0.3%. After stripping out Transportation, Factory Orders declined 0.5% while April’s reading was revised from a decline of 0.2% down to a drop of 0.6%.

On a year/year basis, Factory Orders also dipped into negative territory for the first time since October 2020. The chart below shows the historical y/y change in Factory Orders since 1960. While readings were negative during every recession, there were plenty of other periods where they also declined on a y/y basis and the economy was nowhere near a recession. Not only that but there were also many other periods during economic expansions where Factory Orders dropped by a much larger amount on a y/y basis.

(CLICK HERE FOR THE CHART!)

While the magnitude of the decline in Factory Orders hasn’t been extreme, what is unique about the current period is how long the rate of change in Factory Orders has been declining. The chart below shows streaks where the y/y change in Factory Orders increased (blue line) or declined (red line). With May’s report, the rate of change in Factory Orders on a year/year basis has declined for a record eight straight months, breaking the prior record of seven months that was seen during recessions in the mid-1970s, early 1980s, and during the Financial Crisis. The fact that prior streaks of similar duration all occurred during recessions isn’t exactly reassuring. What makes it less worrisome, though, is that the decline is coming after Durable Goods experienced record growth and consistency of growth coming out of the COVID crash.

There's plenty of evidence out there to cite as reasons why the US economy is teetering on the edge of a recession or merely in a slowdown, and parts of today's Factory Orders report could honestly be used to help justify either viewpoint.

(CLICK HERE FOR THE CHART!)

Why July Brings the Bulls

“I am an optimist because I don’t see the point in being anything else.” -Abraham Lincoln

And with that, the first half of the year is a wrap. What can we say other than all those calls for a recession and new bear market lows sure didn’t play out. We were one of the only places predicting there wouldn’t be a recession this year and to look for stocks to possibly gain 12-15% (and maybe more with some good news). It was a lonely call and we took a lot of heat for it, but we are noticing more and more shops are coming over to the no-recession camp.

I noted in Why a Sunny Second Half of 2023 is Likely some reasons to expect more gains after the big start to this year. Well, here’s another angle on that. I looked at all the years that were up more than 10% at the midpoint of the year, but were also negative the year before. In other words, a potential slingshot move. Sure enough, stocks did even better when this took place, with the S&P 500 higher those final six months eight out of nine times and up a median of 12.4% – well above the median final six month return of 7.7% when those first six months gain more than 10%.

(CLICK HERE FOR THE CHART!)

So, can this surprise summer rally continue? As Honest Abe would say, might as well be an optimist and we think it can, as July historically is a strong month. Of course, it isn’t just about seasonals, as the realization the economy may not be going into a recession and a Fed that is likely done hiking are both also positives, which should keep things moving higher in July.

For starters, stocks have gained 9 of the past 10 years in July, with no month sporting a better average return over the past decade than the 3.3% July gain for the S&P 500. Why is this you ask? The one thing I keep thinking about is July kicks off Q2 earnings season and in the past 10 years overall we’ve seen a lot of doubt out there. It is likely that earnings come in better than expected, calming many of the fears and allowing for a rally. We think that could happen once again this year.

(CLICK HERE FOR THE CHART!)

Let’s be clear though, July is usually a good month in the middle of the weak summer months. The chart below shows this nicely. Since 1950, stocks gain 1.3% on average in July, but this goes up to 2.2% in the past 20 years and 3.3% in the past decade. Pre-election years are a little weaker, up 0.9%. Lastly, when stocks gain more than 3% in the usually weak June (15 times since 1950), stocks gain only 0.8% on average and are higher only 8 times. So, there could be the chance June steals some of July’s gains.

(CLICK HERE FOR THE CHART!)

Lastly, we’ve shared the next chart many times the past few months, as it suggested the potential for a summer rally when very few expected it. We call this the Carson Cycle Composite, as it is a proprietary indicator that combines the past 20 years, pre-election years, the third year of a new President, and years that saw stocks gain at least 5% in January (like ’23). As you can see, a rally in July is normal and we don’t believe ’23 to be any different.

(CLICK HERE FOR THE CHART!)

We want to be clear, at some point stocks will take a well-deserved break. August, September, and October usually can see this volatility and it very well could happen again this year. But we remain overweight equities and we’d use any seasonal weakness as an opportunity to add to core equity exposure.

Here is the list of 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!)

([CLICK HERE FOR NEXT WEEK'S HIGHEST VOLATILITY EARNINGS RELEASES!]())

(T.B.A. THIS WEEKEND.)

([CLICK HERE FOR MONDAY'S PRE-MARKET NOTABLE EARNINGS RELEASES!]())

(N/A.)

DISCUSS!

What are you all watching for in this upcoming trading week?

I hope you all have a wonderful weekend and an awesome trading week ahead r/stocks. :)