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Trading Week - 31/07

Weekly Summary:

During the week, the report season picked up a gear when, on the one hand, better than expected data was presented, but on the other hand, the companies lowered expectations going forward. The interest rate in the USA continues to soar in light of the high inflation and the GDP shows another negative quarter which puts the American market straight into a technical recession.

The reporting season in the US market continued, 56% of the companies in the S&P 500 reported results for the second quarter of 2022, among these companies:

73% reported earnings per share above estimates, 77% below the five-year average.

66% reported meeting the revenue target, 69% below the five-year average.

Most of the target surprises reported by companies in the energy and healthcare sectors were a significant contributor to the increase in the rate of earnings growth in the past week. Upward revisions to EPS estimates and positive earnings surprises for companies in the energy sector were the biggest contributors to the index's overall earnings gain since the end of the second quarter.

In the macro sector, this week there was an interest rate decision in the US where they raised the interest rate according to expectations by 75 basis points to an interest rate of 2.75%, on the one hand the Fed is determined to return inflation to the 2% target, but on the other hand he said that he is expected to look at the data the economic and, if necessary, will slow down the interest rate increases, thus causing the stock market to rise this week.

Later in the week, the GDP data in the USA was published, which showed a drop to 0.9% - against an expectation of 0.5%. This is the second quarter in a row that the US shows a negative GDP (previous quarter -1.6%). It is important to note that components in the national accounting such as investments indicate a continued decline in economic activity. This is another sign that the technical recession has arrived, we are in two consecutive quarters with negative GDP.

Looking ahead, this week we saw many reports from companies about reducing future expectations and preparing for a recession, the stock market rose following the feeling that we are nearing the end of the interest rate hikes. Now, all that remains is to wait for the unemployment figures, if we see a significant increase, we can officially say that the USA is in an economic environment of recession.

The trailing 12-month P/E ratio is 17.1, currently below the five-year average (18.6) but above the 10-year average (17.0). It is also above the 12-month forward P/E recorded at the end of the second quarter and stood at 15.8. Since the end of the second quarter, the price of the index has risen, while Kadima's earnings per share estimate has fallen, that is, inflated companies continue the trend of lowering multiples, while strong companies have pulled the market to increase rates.

Indices World:

S&P 500 - Weekly Performance

Credit: Koyfin

US Yield Curve

Weekly Earnings Releases

Credit: Earnings Whispers

Fear & Greed Index

Credit: CNBC Business

According to CNBC's Fear & Greed index, it can be seen that the markets are now in the momentum of fear but have left the level of increased fear, it is important to remember that now the report season has begun in the American market and may return the market to declines and an increase in volatility.


Market Momentum: Stock market levels compared to where they have been in recent months. When the S&P 500 is above the moving or rolling average of the previous 125 trading days, it is a sign of positive momentum. But if the index is below average, it shows that investors are getting nervous. The index uses market momentum as a signal for fear and increasing momentum for greed.

Stock price strength: how big stocks can skew market returns. It is also important to know how many stocks are successful compared to those that are struggling. This index shows the number of stocks on the NYSE at a 52-week high compared to those at a 52-week low. When there are many more highs than lows, it is a bullish sign and signals greed.

Stock Trading Volume: the market consists of thousands of stocks and on any given day investors are actively buying and selling them. This index looks at the amount, or volume, of stocks on the NYSE that are rising compared to the number of stocks that are falling. A low (or even negative) number is a bearish sign. The index uses the decline in trading volume as a signal of fear.

Put/Call Options: options are contracts that give investors the right to buy or sell stocks, indices or other financial securities at an agreed price and date. When the Put to Call ratio rises, it is usually a sign that investors are getting more nervous. A ratio above 1 is considered bearish. The index uses the options ratio as a signal for fear.

Market Volatility: The best-known measure of market sentiment is the Volatility Index, the VIX, which measures expected price movements or volatility in S&P 500 options over the next 30 days. The VIX often falls on days when the broader market rises and soars when stocks plunge. But the key is to look at the VIX over time. It tends to be lower in a bull market and higher when the bears are in control. The index uses increasing volatility in the market as a signal of fear.

Safe-Haven Demand: stocks are riskier than bonds but the reward for investing in stocks over time may be greater. Still, bonds can outperform stocks in short periods. Safe haven demand shows the difference between government bond and stock returns over the past 20 trading days. Bonds do better when investors are scared. The index uses the growing demand for government bonds as a signal of fear.

Junk Bond Demand: junk bonds carry higher risk. Bond yields fall when prices rise. If investors crave junk bonds, yields go down. Also, yields go up when people sell. So when the spread between junk and government bond yields is smaller, it's a sign that investors are taking on more risk. A larger spread shows caution The index uses demand for junk bonds as a signal of greed.

Have a Great Week!

Daniel Asoulin.

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