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 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 February 6th, 2023.Stocks fall on Friday, but S&P 500 notches winning week as strong 2023 continues – (Source)Stocks fell Friday as a strong jobs report worried some investors that the Federal Reserve would keep hiking rates. Still, the S&P 500 notched its fourth weekly gain in five weeks as investors bet falling inflation is ahead.The S&P 500 declined 1.04% to 4,136.48. The Nasdaq Composite shed 1.59% to 12,006.95. Meanwhile, the Dow Jones Industrial Average slipped 127.93 points, or 0.38%, to 33,926.01 — even as Apple shares gained.Regardless, the broader market index and Nasdaq Composite notched a positive week. The S&P 500 closed the week higher by 1.62%. The Nasdaq Composite gained 3.31%, posting its fifth-straight winning week as it rode a tech-fueled rally to outperform the other major indexes. Meanwhile, the Dow was the outlier, down 0.15%.Investors absorbed a stronger-than-expected January jobs report that spurred bond yields higher. The U.S. economy added 517,000 jobs in January, blowing past Dow Jones’ estimates of a jobs gain of 187,000 last month. The 10-year Treasury yield topped 3.5% after jumping more than 12 basis points following the report.Wall Street also digested earnings results from major tech companies. Apple shares jumped 2.4%, reversing earlier losses after the company missed estimates on the top and bottom lines in its most recent quarterly report. Meanwhile, Google-parent Alphabet fell 2.8% following disappointing results. Amazon’s stock also declined 8.4% in its worst day since April after the e-commerce giant’s report, though it still notched a 1.1% gain on the week.Even so, investors took hope from recent signs of falling inflation, as well as some well-received comments this week from Federal Reserve Chair Jerome Powell saying the disinflationary process has begun.“I think the market’s coming closer to our view that inflation is declining rapidly,” said Jay Hatfield, CEO at Infrastructure Capital Management. ”[The Fed’s] models have proven to be terrible. They missed this inflation on the upside, and now they’re missing the deflation.”This past week saw the following moves in the S&P:S&P Sectors for this past week:Major Indices for this past week:Major Futures Markets as of Friday’s close:Economic Calendar for the Week Ahead:Percentage Changes for the Major Indices, WTD, MTD, QTD, YTD as of Friday’s close:S&P Sectors for the Past Week:Major Indices Pullback/Correction Levels as of Friday’s close:Major Indices Rally Levels as of Friday’s close:Most Anticipated Earnings Releases for this week:(CLICK HERE FOR THE CHART!)(T.B.A. THIS WEEKEND.)Here are the upcoming IPO’s for this week:Friday’s Stock Analyst Upgrades & Downgrades:Boom Goes the Labor MarketSometimes a meme can convey a white paper’s worth of sentiment within a single picture; that’s why they spread faster than the news sometimes. so, let’s keep it simple:The economy created 517,000 jobs in January, well above expectations for a slowdown to 175,000.The unemployment rate is at 3.4%, the lowest level since May 1969.It’s like the labor market, i.e., America’s employers are on a mission to upend forecasts of a recession in 2023.Oh, and revisions suggest payroll growth was stronger than we thought in 2022. The Bureau of Labor Statistics now says the economy created 4.8 million jobs in 2022, as opposed to the previous estimate of 4.5 million.Forget recessions and landings; these numbers suggest an employment boom!Strong numbers under the hoodThe data corroborates what we’ve been seeing in leading employment indicators like weekly initial claims for unemployment, which fell to the lowest level in 9 months last week. Now January data typically tends to be quite noisy due to seasonal effects. But even accounting for that, let’s not miss the big picture that the labor market is looking very resilient, if not outright on fire.The huge payroll gain in January was not due to outsized gains in one sector either. Cyclical sectors like manufacturing, construction, and wholesale/retail trade services all added a total of 85,000 jobs – which goes against the story of a significant slowdown in these areas.Meanwhile, the service industry is on fire. Americans are spending, and employers are responding – including adding 113,000 net jobs across accommodation, restaurants, and bars.Information processing, which includes Technology, and Utilities, were the only sectors that saw job losses. And not a lot, either.What does this mean for the FedAgain, let’s keep it simple with respect to what the Fed will, or will not do. As I wrote after the FOMC meeting, the Fed is downshifting and waiting to see disinflation in the “core services inflation, ex housing” category. This is closely tied to wage growth, and there’s good news on that front.The average hourly earnings (AHE) data that came through with the payroll data shows further deceleration, especially for non-managerial employees, who tend to spend a relatively higher portion of their income.The hourly earnings data can be noisy and subject to revisions, but we also saw the employment cost index (ECI) for Q4 moving lower. The ECI comes out only quarterly, but it is considered the most stable measure of wage growth – so the deceleration in that data should count heavily when thinking about wage growth.The best news amongst all this is that wage growth appears to be slowing even as the unemployment rate is at 50+ year lows. This is not what textbook theory would predict, or forecasters for that matter. But we’ll take reality over that. And Powell’s comments after the FOMC meeting suggest he may do the same.Of course, stronger economic growth means the Fed is more likely to keep interest rates higher for longer (Contrary to market expectations of rate cuts in the second half of 2023). We believe the economy is strong enough to handle higher rates currently.To summarizeThe employment data shows no sign of a slowdownThis suggests the economy is not really slowing, let alone close to a recessionWage growth is trending lower, which should be good news for the Fed as they look to get close to peak rateA relatively stronger-than-expected economy means the Fed is more likely to keep rates higher for longerFebruary 2023 Almanac: Historically Solid Gains in Pre-Election YearsAlthough February is right in the middle of the Best Six Months, its long-term track record, since 1950, is rather tepid. February ranks no better than sixth and has posted meager average gains except for the Russell 2000. Small cap stocks, benefiting from “January Effect” carry over; historically tend to outpace large cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.1% in February since 1979—just the sixth best month for that benchmark. Even with the market struggling the past two trading sessions Russell 2000 has maintained a performance lead this January compared to DJIA and S&P 500. This does bode well for the continued outperformance in February by small-cap stocks.In pre-election years, February’s performance generally improves with average returns all turning positive. NASDAQ performs best, gaining an average 2.8% in pre-election-year Februarys since 1971. Russell 2000 is second best, averaging gains of 2.7% since 1979. DJIA, S&P 500 and Russell 1000, the large-cap indices, tend to lag with average advances ranging from 1.2% to 1.7%.Sentiment Streak OverGiven the collection periods ending last night at midnight at the absolute latest, the latest sentiment surveys would have hardly captured shifts in outlook following the latest FOMC decision or the strong market reaction to the FOMC. That is to say, the latest AAII sentiment survey can be considered a bit stale. Regardless, the latest week’s survey from AAII showed a modest increase in the percentage of respondents reporting as bullish. While still below the high of 31% from two weeks ago, 29.9% of investors reported as bullish this week.It is a similar picture for bearish sentiment. 34.6% reported as bearish in the latest week which remains at the low end of the past year’s range of readings but slightly above the more recent low from two weeks ago.Without any major shifts in bullish or bearish sentiment, bears continue to outnumber bulls as has been the case for a record 44 weeks in a row. That being said, the bull-bear spread has been showing single-digit readings for three weeks in a row. The only other time during the streak of negative readings that the same could be said was last August.While the record streak of overall bearish sentiment readings lives on for the AAII survey, combining the AAII survey with other sentiment readings like the NAAIM Exposure Index and the Investors Intelligence survey shows sentiment is finally back to bullish, if even just barely. As shown in the first chart below, the average sentiment survey is now very slightly above historical average readings. That is the first time this has occurred in over a year, bringing to an end a record streak of negative readings.Layoffs Still Not ShowingJobless claims continue to impress with the latest reading on seasonally adjusted initial claims dropping to 183K which is the lowest level since April 2022. Claims have now declined in four of the last five weeks and have shown sub-200K prints in each of the past three weeks.On a non-seasonally adjusted (NSA) basis, claims are falling sharply as would be seasonally normal at this point of the year. In fact, this week and last are two of the weeks of the year that have most consistently seen a lower sequential reading in claims on a historical basis. As shown in the second chart below, last week has never seen claims move higher week over week while the current week of the year has only seen an increase 9% of the time. While NSA claims were lower this week, it was not by much with the reading falling from 225.23K to just 224.36K. The only other time claims have fallen by less than 1K during the comparable week of the year was in 2006. Although the most recent week’s data was not as strong as might be expected given seasonality and that very well could be a result of recent layoffs, claims remain at historically strong levels.As for continuing claims, which are lagged an additional week to the initial claims number, the latest reading came in at 1.655 million versus expectations for an increase to 1.684 million. Unlike initial claims, continuing claims are much further above last year’s lows, however, the past several weeks have marked a pause in what had been a steep uptrend that had developed in the back half of last year. Additionally, as for the actual level of claims, the most recent readings remain impressively strong and consistent with pre-pandemic levels that had not been seen in around 50 years.The Trifecta of BullishAs we noted yesterday, 2023 is off to a great start for stocks, especially when compared with what we saw in 2022. Well, here’s another potentially bullish development that just triggered.I call it the Trifecta of Bullishness. Yes, I made it up, but I like it. Stocks were up nicely in January, we know that. But the S&P 500 also gained during the normally bullish Santa Claus rally period (the last five days of the year and first two of the new year), along with adding 0.8% the first five days of the year.It turns out that, historically, when all three of these are hit in the same year, the future returns are quite strong. In fact, the full year has gained 17.5% on average and closed the year higher more than 90% of the time. 1966, 2011, and 2018 were the only years out of 31 that closed in the red. Taking things one step further, the S&P 500 saw a peak-to-trough correction of nearly 10% at some point on average during those years, compared with nearly a 14% peak-to-trough in your average year. So, returns were stronger and there was less volatility; not a bad combo.This is just one bullet point, I concede, but when layered on top of the others we’ve noted in the past few months, we continue to think 2023 has the potential to be better for the bulls than most are expecting. What happens after a Trifecta of Bullish on the heels of the previous year in the red, you ask? Incredibly stocks gained the full year every time (9 for 9), and the full year added more than 27% on average. We aren’t expecting stocks to gain that much in 2023, as we are on record of looking for between 12-15% this year, but this study does little to change our optimistic outlook.I will leave on this, one of the big worries from the Fed has been wages. If wages stay high, we could be looking at a 1970s style of higher for longer inflation. Yesterday, the Employment Cost Index (ECI) fell to only an increase of 1% in Q4. This was lower than expected, and now three consecutive quarters of declines (the longest quarterly decline streak since late 2004).Why does this all matter? It shows inflation is indeed showing signs of being under control, which means the Fed is increasingly likely to end its historically aggressive series of rate hikes sooner. Fed Chair Jerome Powell was on record as wanting to see the ECI trend lower and that is exactly what we are seeing now. The Carson Investment Research team increased our view on equities to overweight in late December for a myriad of reasons, but one of the main ones being lower inflation could be a bullish catalyst in 2023.So Goes January, Goes the Year?“There is nothing new in the world except the history you do not know.” Harry S. TrumanWell, well, well, isn’t this nice? Stocks have come out swinging in 2023, and we are looking at a very solid first month of the year. The next question is, does a good January mean much for the rest of the year? It turns out it very well could.Widely known as the January Barometer, it looks at how January does and what could happen in the next 11 months. It is known by the saying, ‘So goes January, goes the year’ in the media. The late Yale Hirsch of Almanac Trader 1972 discovered this indicator. Today it is carried on by Yale’s son Jeff. I’ve known Jeff for years, and I must say, he is great, and I believe the work they do is some of the best in terms of seasonality, etc.Let’s look at the January Barometer. For starters, last year saw stocks lower during the first month of the year, and we all know how that went. But it turns out there is no doubt some validity to how the first month does relative to the rest of the year. Moreover, as Truman noted above, history could give clues to what could be next.Historically speaking, when the first month is positive for stocks, the rest of the year is up nearly 12% on average and higher 86% of the time. And when that first month is lower? It is up about 2% on average and higher 60% of the time. Compare this with your average year’s final 11 months, up 7.8% and higher 75.3% of the time. Lastly, a big first month (>5%) is even better, up 14.2% in the final 11 months and higher nearly 86% of the time. This matters, as the S&P 500 has a shot at being up 5% when this month is over.Taking this a step further, here’s something I call a bullish slingshot. When the S&P 500 was lower the year before (check that box for 2022), but stocks gained more than 5% in January, very good things tended to happen next. This rare bullish signal only triggered five times (with 2023 having a chance at number six), and the full year has never been lower, up close to 30% on average.Let’s be clear, we aren’t looking for a 30% rally in stocks, but once again, this is something we wouldn’t ignore.Overall, to see January strong is a nice change and a potentially good sign. At the Carson Investment Research team, we’ve been on record for several months, predicting that October was indeed the end of the bear market. With small caps leading, high-beta names leading, and other global stock markets participating, we continue to expect higher prices in 2023 and don’t think we’ll make new lows for stocks.Now for fun, the Year of the Rabbit just started. Take note, in no way should you ever invest in the Signs of the Zodiac, but this is an entertaining one to share. It turns out that stocks gain 10.6% on average during the Year of the Rabbit and are higher 83.3% of the time. So, again, please don’t invest in this, but hey, we’ll take it after last year!NASDAQ & DJIA Up 79.2% Of Time February 1st Day Last 24 YearsFebruary may be the weak link in the “Best Six Months,” but its first trading day is now the best first trading day of the month. Over the past 24 years, S&P 500 has advanced 75.0% of the time with an average gain of 0.46%. DJIA and NASDAQ are even stronger. DJIA has been up 79.2% of the time with an average advance of 0.41%. NASDAQ has been best, also up 79.2% of the time but with an average gain of 0.56%. All eyes and ears will be on the Fed announcement tomorrow and no one knows what they will say. Any hawkish remarks could derail February 1’s bullish tendency.Here are the most notable companies reporting earnings in this upcoming trading week ahead-(CLICK HERE FOR NEXT WEEK’S MOST NOTABLE EARNINGS RELEASES!)(T.B.A. THIS WEEKEND.)(CLICK HERE FOR NEXT WEEK’S HIGHEST VOLATILITY EARNINGS RELEASES!)(T.B.A. THIS WEEKEND.)Below are some of the notable companies coming out with earnings releases this upcoming trading week ahead which includes the date/time of release & consensus estimates courtesy of Earnings Whispers:Monday 2.6.23 Before Market Open:Monday 2.6.23 After Market Close:Tuesday 2.7.23 Before Market Open:Tuesday 2.7.23 After Market Close:Wednesday 2.8.23 Before Market Open:Wednesday 2.8.23 After Market Close:Thursday 2.9.23 Before Market Open:Thursday 2.9.23 After Market Close:Friday 2.10.23 Before Market Open:Friday 2.10.23 After Market Close:(CLICK HERE FOR FRIDAY’S AFTER-MARKET EARNINGS TIME & ESTIMATES!)(NONE.)(T.B.A.THIS WEEKEND.)(T.B.A.THIS WEEKEND.) (T.B.A.THIS WEEKEND.).DISCUSS!What are you all watching for in this upcoming trading week?I hope you all have a wonderful weekend and a great trading week ahead r/stocks. 🙂
