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Weekly Stock Market & Economy Recap: Don’t Worry About A 50 Week MA Market Correction

 


S&P 500 results update

S&P 500 earnings per share (EPS) increased to $ 206.88 last week. Forward EPS is now + 30.1% since the start of the year.

The second quarter results are complete. 88% of companies exceeded earnings expectations, and the combined results were 15.8% above expectations. Total Q2 earnings growth was + 95.6%. (Refinitiv I / B / I / O data)

SPX Weekly Chart

The index fell -1.69% last week.

S&P 500 price / earnings ratio (PE) fell to 21.6.

S&P 500 earnings yield

S&P 500 earnings yield increased to 4.64%, which still compares favorably to the current rate of 1.34%.

Economic data review

(IPP) increased by + 0.7% for the month of August, and is now + 8.3% over the last 12 months. This is the highest level of annualized producer price inflation since the start of the data set in November 2010. Still no sign of “transient” inflation.

Graph of the week

(BLOWS) was published last week, showing an increase of + 749K jobs in July (one month lag). There are now 10.39 million job openings in the United States, which the graph above puts that into perspective, compared to the 8.38 million people currently aged 16 and over who are in the unemployment. This is around 2.6 million more job vacancies than the total unemployed population.

We are currently 5.3 million net job gains below the pre-COVID peak. Current openings are therefore roughly double that amount. We should be encouraged by this, as it shows the potential for big gains to come.

Summary: A shortened holiday week with little profit and economic data, investors took the opportunity to take some profits. Perhaps the biggest news of the week was the European Central Bank (ECB) which was about to start scaling back its asset purchase program. With several voting members of the Fed expressing support for the US central bank to also start cutting asset purchases as soon as possible.

I have said it many times before, investors should not fear a modest policy pivot. It is not about “tightening” monetary policy, it is described as being “less accommodating”. The chart above puts this in perspective, with bond yields in all major developed countries currently producing yields below the rate of inflation (negative real yields). Better to see them take small, incremental steps to reverse the policy now, then risk falling behind and then having to tighten the policy dramatically.

ADLINENYC chart

While earnings and interest rates ultimately determine stock prices, sentiment and liquidity conditions can have temporary effects. The chart above is an update of the potential bearish divergence that I have been watching for some time. The upper part of the graph shows the advance / decline line. The lower part of the chart shows the S&P 500 Index.

While the S&P 500 hit new highs until last week, the advance / fall line peaked in June. Which means fewer stocks participated in these rallies, a potential sign of short-term exhaustion. Much like the Fed removing emergency stimulus, a market correction to around the 50-week moving average should not be feared. It would be perfectly normal and healthy if that happened.

The coming week: It’s a quiet week for earnings, with just 2 companies in the S&P 500. For economic data, we have the and Consumer Price Index () on Tuesday, Wednesday and Thursday.

Sources

1/ https://Google.com/

2/ https://www.investing.com/analysis/weekly-stock-market-and-economy-recap-dont-fear-a-50-week-ma-market-correction-200601616

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