The Bottom Line
The gain by one stock dominated performances by the S&P 500 Index and NASDAQ Composite Index last week: the 15% price advance by heavily weighted NVidia following release of its better than expected quarterly results. Other major U.S. equity indices were notably weaker: Dow Jones Industrial Average down 2.33%, Dow Jones Transportation Average dropped 2.70%, Equal Weighted S&P 500 ETF dropped 1.33% and Russell 2000 ETF dropped 1.85%.
Seasonal weakness by broadly based U.S. equity indices frequently appears at this time of year (Sell in May and Go Away?), particularly during U.S. Presidential Election years. The Dow Jones Industrial Average is notable for its weakness in May. However, weakness in May historically is followed by a sustained upside move from the end of June until early September.
Economic focus this week is on the April Core PCE Price Index released on Friday. A significant variation from the March year-over-year report showing a 2.8% increase could have an important impact on U.S. equity indices.
A word of caution on the S&P 500 Index from Tom Bowley! Following is his comment released on Saturday on www.StockCharts.com
Inflation Likely To Climb This Summer
There’s like to be a few negative/bearish analyst comments this summer. The reason? In 2023, the June (+0.19%), July (+0.23%), and August (+0.23%) represented the 3 lowest monthly core CPI readings. That means that these monthly readings in the same 3 months as 2023 will need to come in extremely low or there’ll be brief 3-month spike in the annual core rate of inflation at the consumer level. We know the stock market doesn’t like uncertainty of any kind and a 3-month move higher in inflation could trigger that uncertainty.
Keep in mind that the June, July, and August readings are generally reported within the first 10 days to 2 weeks of the following month. So if we see weakness from these readings, it’ll likely be from mid-July through mid-September.
Presidential Election Year Cycle
Finally, let’s review the typical price action during a Presidential election year:
During this cycle, we tend to see very strong runs to the upside in late-May, June, and into early July. Given that our major indices just broke to new all-time record highs after a period of consolidation, this potential bullish scenario looks like a solid one to me.
But when those June, July, and August CPI readings come out, just think back to this article. This could be a real threat to our major indices over the late summer months.
Consensus for Earnings and Revenues for S&P 500 Companies
Source: www.FactSet.com
Higher than consensus first quarter results released to date prompted analysts to increase their first quarter earnings estimates again thanks mainly to release of higher than consensus quarterly results by Nvidia. Ninety six percent of S&P 500 companies have reported first quarter results to date. Consensus on a year-over-year basis calls for an earnings increase of 6.0% (versus a 5.7% increase last week). Revenues are expected to increase 4.2%.
Earnings gains accelerate in the second and third quarters. Consensus for the second quarter calls for a 9.3% earnings increase (versus 9.2% last week) and a 4.7% increase in revenues (versus 4.6% last week). Consensus for the third quarter calls for an 8.3% increase in earnings (versus 8.2% last week) and a 4.9% increase in revenues.
Earnings gains accelerate further in the fourth quarter. Consensus for the fourth quarter calls for a 17.6% increase in earnings (versus 17.4% last week) and a 5.5% increase in revenues.
For all of 2024, consensus calls for an 11.4% earnings increase (versus 11.1% last week) and a 5.0% increase in revenues.
Estimated gains for fiscal 2025 increased slightly. Consensus calls for a 14.2% earnings increase (versus a previous 14.1% increase) and a 5.9% revenue increase (versus 5.8% last week).
Economic News This Week
Source: www.Investing.com
U.S. equity markets are closed today for a holiday
Beige Book is released at 2:00 PM EDT on Wednesday. More information about “dot plots” on the Fed Fund Rate supplied by FOMC members will be revealed.
Updated estimate of U.S. annualized first quarter 2024 real GDP released at 8:30 AM EDT on Thursday is expected to egrow 1.6% versus a gain of 3.4% in the fourth quarter of 2023.
April PCE Price Index is released at 8:30 AM EDT on Friday
April Personal Income released at 8:30 AM EDT on Friday is expected to increase 0.3% versus a gain of 0.5% in March. April Personal Spending is expected to increase 0.3% versus a gain of 0.8% in March.
Canadian March and first quarter GDP is released at 8:30 AM EDT on Friday.
May Chicago Purchasing Managers Index released at 9:45 AM EDT on Friday is expected to increase to 40.0 from 37.9 in April.
Selected Earnings News This Week
Source: www.Investing.com
Nine S&P 50 companies and one Dow Jones Industrial Average company (Salesforce.com)
are scheduled to report quarterly results this week.
Focuses in Canada are reports by Canada’s five major banks.
Focuses in the U.S. are reports by major retailers including Costco, Lululemon, Dollar General, Best Buy, Gap Stores, Kohl’s and Foot Locker.
Trader’s Corner
Equity Indices and Related ETFs
Daily Seasonal/Technical Equity Trends for May 24th 2024
Green: Increase from previous day
Red: Decrease from previous day
Source for all positive seasonality ratings: www.EquityClock.com
Commodities
Daily Seasonal/Technical Commodities Trends for May 24th 2024
Green: Increase from previous day
Red: Decrease from previous day
Sectors
Daily Seasonal/Technical Sector Trends for May 24th 2024
Green: Increase from previous day
Red: Decrease from previous day
Links offered by valued providers
The best technical indicator to use: David Keller
The Best Technical Indicator to Use: MACD vs. PPO vs. PMO – YouTube
Declining Rates would equal NIRVANA for equities: Tom Bowley
Declining Rates Would = NIRVANA For Equities – YouTube
Michael Campbell’s Money Talks for May 25th 2024
mikes-content (mikesmoneytalks.ca)
US Consumers Joining China in Gold Buying Spree: Bob Hoye
US Consumers Joining China in Gold Buying Spree – HoweStreet
Shipping Container Shortage Could Fuel Inflation: Mark Leibovit
Shipping Container Shortage Could Fuel Inflation – HoweStreet
Trading Desk Notes For May 25, 2023:Victor Adair
Trading Desk Notes For May 25, 2023 – HoweStreet
US Stock Build Adds To Downside Price Pressure – A Breach of US$75/B is Likely in the Near Term
Technical Scores
Calculated as follows:
Intermediate Uptrend based on at least 20 trading days: Score 2
(Higher highs and higher lows)
Intermediate Neutral trend: Score 0
(Not up or down)
Intermediate Downtrend: Score -2
(Lower highs and lower lows)
Outperformance relative to the S&P 500 Index: Score: 2
Neutral Performance relative to the S&P 500 Index: 0
Underperformance relative to the S&P 500 Index: Score –2
Above 20 day moving average: Score 1
At 20 day moving average: Score: 0
Below 20 day moving average: –1
Up trending momentum indicators (Daily Stochastics, RSI and MACD): 1
Mixed momentum indicators: 0
Down trending momentum indicators: –1
Technical scores range from -6 to +6. Technical buy signals based on the above guidelines start when a security advances to at least 0.0, but preferably 2.0 or higher. Technical sell/short signals start when a security descends to 0, but preferably -2.0 or lower.
Long positions require maintaining a technical score of -2.0 or higher. Conversely, a short position requires maintaining a technical score of +2.0 or lower
Changes Last Week
Technical Notes for Friday
Canadian Global Agriculture iShares $COW moved below $62.78 setting an intermediate downtrend.
ExxonMobil $XOM a Dow Jones Industrial Average stock moved below $113.21extending an intermediate downtrend.
Workday $WDAY a NASDAQ 100 stock moved below $241.14 extending an intermediate downtrend.
AbbVie $ABBV an S&P 100 stock moved below $157.65 extending an intermediate downtrend.
S&P 500 Momentum Barometers
The intermediate term Barometer added 3.80 on Friday, but plunged 14.40 last week to 49.60. It changed from Overbought to Neutral on a drop below 60.00. Daily trend is down.
The long term Barometer added 0.40 on Friday, but plunged 7.20 last week to 73.00. It remains Overbought. Daily trend is down.
TSX Momentum Barometers
The intermediate term Barometer added 3.59 on Friday, but plunged 10.76 last week to 58.30, It changed from Overbought to Neutral on a drop below 60.00. Daily trend is down.
The long term Barometer added 0.45 on Friday, but dropped 4.04 points to 68.16 last week. It remains Overbought. Daily trend is down.
Disclaimer: Seasonality ratings and technical ratings offered in this report and at
www.equityclock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed
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Equity Clock Publications