YOUR WEEKLY ROADMAP

Will it be a week of tricks or treats for the market as we close out October? 🎃👻🍫

One thing we do know is that it should be another volatile week as we head into the seasonally strongest part of the year. However, investors are anything but optimistic as October looks to be on track for a third straight losing month for the major indexes.

The FOMC meeting will be front and center followed by another week of key individual earnings, highlighted by Apple. The major averages broke key support levels, so what does this mean going forward. Let’s dive in…

Breakdown but Busted? That’s the million dollar question on Wall Street. Is this the end of the year-long bull market? Not quite yet, as 10% corrections have happened in 7 of the last 10 bull markets (h/t Callie Cox). Technically speaking, however, the markets incurred some major damage as the S&P 500 broke critical levels of support. Levels we’ve discussed several times here.

That so-called “line-in-the-sand” at 4200 has been breached and the index is below the 200-day moving average (rising red line). There’s an old adage that nothing good ever happens below the 200-day moving average. It’s a barometer that helps measure the health of either an index or individual stock. Above the average is a positive sign and below is not.

For the market to get back on track we need a turning point - a wash-out in a sense. Given the geopolitical risk and market moving headlines it could come at any moment. If we were to get that rally, the question then becomes is it real or is it a “relief rally”?

At this point in time, any rally would be considered a relief. We’ve experienced this before in March when the index spent six days below the average and then broke back above it. We’ve closed below the 200-day now for four days. We need a quick reversal and to recapture that level to resume any semblance of an uptrend.

Currently that scenario seems challenging, but the catalysts for a rally are there - seasonal factors, a Fed meeting, more big earnings and potential clarity in the Middle East conflict. If we don’t turn positive, look for support areas near 4100 and 4050.

Apple (AAPL), which represents 7% of the S&P 500’s weight on its own, reports on Thursday and should move markets. It’s the biggest of the megacaps releasing earnings and we preview it below. Overall, 160 more S&P 500 companies report this week.

FOMC Decision. All eyes will be on Jerome Powell as the Fed announces its rate decision on Wednesday at 2:00. Once again, the street overwhelmingly expects a pause in rate hikes.

The Fed Chair remains steadfast in his view to be data dependent when deciding rate hikes from meeting to meeting. The economic reports they received between meetings were mixed. Retail sales were double expectations and the labor market remained resilient thus indicating more rate hikes may be needed. However CPI and PPI were not alarming and showed signs of slowing.

Currently the market has another pause factored in. What the market wants to know is what’s next. What will the tone of the Fed be concerning the rest of 2023 and into 2024? As always, watch the 2:30 press conference closely. Upon completion of his comments, watch the direction of the market into the closing bell. That tends to be the report card for how the market believes the Fed performed at this meeting.

We don’t expect any surprises from Chairman Powell, but the market will watch his forward looking narrative closely. The concern is more about how it affects yields. The equity market could use a pullback in the 10-year. If it can move away from that 5% level it should lead to a nice relief rally in small caps and the growth names that have been struggling lately.

Earnings. So far 245 of the S&P 500 companies have reported quarterly results. This week another 160 companies in the index report. Some of the more notable names include Dow components McDonald’s (MCD), Caterpillar (CAT) and Amgen (AMGN).

Stocks in Focus…

Apple (AAPL) shares have declined as much as 13% since its last quarterly report despite reporting solid results that beat on both the top and bottom lines. Iphone sales and demand out of China should be the primary focus of investors. They hope to reverse the recent trend when they report after the close on Thursday.

Speaking of the trend, let’s look at the chart. The stock gapped lower after last quarter’s report (red circle) breaking a consistent uptrend. It was never able to recapture that level and has traded lower ever since making a series of consistent lower lows and lower highs.

Last week it broke below its 200-day moving average and is now trying to recapture that technical threshold. A rally on earnings should see the stock test the declining 50-day moving average just under $177. Any disappointing price action and watch the $155-$160 area for its next support level.

Pfizer (PFE) lowered their full year fiscal guidance two weeks ago. The reduction was eye-opening as they went from a range of $3.25-$3.45 to $1.45-$1.65. The main culprit behind the downward revision was due to lack of demand for its Covid antiviral pill, Paxlovid. Ironically, as sales of the Covid pill have dropped dramatically, the share price of Pfizer has taken a round trip back to its pre-Covid levels as well.

Shares finished the week at $30.11 down -3.4% ahead of their Halloween earnings report. Watch to see if this $30 level can hold and if the stock can get rewarded for beating this major downward revision.

Starbucks (SBUX) has retreated 23% from its 2023 highs and is currently down -6% year-to-date. While consumer spending has remained resilient overall, will their customers' discretionary spending habits start to change. If so, Starbucks (SBUX) may be the stock to watch.

Technically, the stock has never recovered from its disappointing quarterly results last May (red square). It’s been in a consistent downtrend ever since and trending below both key moving averages. It has been trying to find support just under the $90 level. To the upside, the declining 50-day moving average has been that primary resistance area for shares. If it can finally reverse that trend, look for a potential run to the 200-day moving average at $100.30.

Economic Calendar

Tuesday - Halloween - Last day of October - BOO 👻

Wednesday - ADP Employment 8:15; FOMC Decision 2:00, Powell Press Conference 2:30

Thursday - Jobless Claims 8:30

Friday - Unemployment Rate (3.8% expected), US Hourly Wages 8:30

THE WEEK THAT WAS

Geopolitical headlines continued to overshadow earnings and economic data. Shares remained volatile all week and again sold off Friday as traders wanted to limit exposure over the weekend.

Ground operations going into Gaza and rhetoric from Iran continued to put pressure on equities. While the 10-year treasury maintained levels near 5%. Traders remained cautious and somewhat anxious as markets remained on edge.

As for earnings, reactions aren’t focused on what have you done for me lately, but what about the next six months. Where is the growth coming from? The AI story that was so prominent in the first half of the year has now turned into a new question - how will companies monetize on that AI strategy going forward.

Earnings Reactions. Companies that reported positive earnings struggled to maintain upward momentum. They were overshadowed by yields that remain elevated and stubborn as well as geopolitical headlines that caused much intraday volatility.

According to FactSet data, 78% of the S&P 500 companies that have reported beat their EPS estimates. The number of positive surprises and the magnitude of the surprises is above the 10-year averages. Yet the market’s lackluster reception to these numbers remains overshadowed by high yields and headlines out of their control.

Last week shares of Microsoft (MSFT) spiked as high as $346 a share but gave back most of their gains closing at $329.81, up only 3.1% for the week. Meta Platforms (META) had a strong quarter but their CFO warned geopolitical events may affect their future ad sales. As a result shares sold off and closed lower by -3.9%. Lastly Amazon (AMZN) reported a strong quarter, but only managed to rally 2% for the week.

Economic Data continues to remain positive showing an economy that remains strong and a consumer that continues to spend.

GDP came in at 4.9% that was higher than the 4.7% projections. The economy grew at its fastest pace in nearly two years as consumer spending remains strong. The number made traders leery that the Fed’s hawkish narrative will continue well into year end. While no fears a rate hike will occur this week, the thought of a more dovish narrative may be out the window for now.

The Fed’s preferred inflation number in the PCE was right inline with economists expectations at 3.7% year-over-year. The number that did raise eyebrows was the expenditures was 0.7% vs an expectation of 0.5% while savings fell below average. This means that investors are spending more than expected but dipping into their savings to do so. This is a trend worth watching going forward.

All in the Clouds. Microsoft (MSFT) shares jumped thanks to better than expected growth in its Azure cloud division. Amazon (AMZN) rallied thanks to regained momentum in its AWS cloud unit. While Alphabet (GOOGL) experienced a slight deceleration in growth in part due to the success of their peers in MSFT and AMZN which took market share from them.

Heat Map. Energy took the biggest hit last week as crude prices retreated despite turmoil in the Middle East. Mixed earnings from the likes of ExxonMobil (XOM) and Chevron (CVX) also took its toll on the sector.

Even the bright spots weren’t so bright. Higher treasury yields and geo-political events continue to be a drag on stocks, even those that had solid quarterly reports. Both Microsoft (MSFT) and Amazon (AMZN) struggled to stay in the green as 10 of 11 sectors fell for the week.

STOCKS IN THE NEWS

Verizon (VZ) and AT&T (T) were two stocks left for dead for years. However, they may have found a pulse after this earnings cycle. They both released earnings that surprised to the upside and got a long overdue bounce. Of those bounces, one was able to sustain momentum and one wasn’t.

The positive - shares of VZ rallied 9.3% on their earnings news. It was the communications giant's largest daily gain since 2008. Shares closed at $33.44 to finish higher by 5.9%, off their highest levels but still much higher.

The negative - shares of T rallied 6.5% when they released results on October 19th. Shares gained another 4% when Verizon announced results Tuesday. Sadly, AT&T couldn’t sustain that upward momentum. Shares reversed midweek and finished down -3.6%. They still remain 50 cents above their level before earnings, but a far cry from where shareholders hoped they’d be.

UPS (UPS) reported a larger than expected revenue decline and cut its full year guidance. Shares of the delivery giant fell over 11% on the news and broke key technical levels in the process.

Looking at the chart, shares broke solidly below $142 support and are now in a technical no man’s land. The pocket between $111 and $142 has little price history meaning there isn't an area where buyers or sellers have historically stepped in to participate or have an anchored bias towards as there is little price action.

Generally when we see these “pockets” or price voids, they tend to fill. It may take some time, but look for more downward pressure over the coming quarter for UPS with this $111 level as a possible floor and $142 as its new level of resistance.

Chipotle Mexican Grill (CMG) continues to be a bright spot. They were able to pass on rising costs to a loyal and hungry consumer base which helped them beat analyst expectations. That’s 10 of the last 11 quarters of beats for the popular fast food chain. Shares rose 3.1% last week are up 36% year-to-date.

RTX Corporation (RTX). Shares of the combined Raytheon and United Technologies had been struggling for months. This quarter they beat analysts estimates and announced a $10 billion buyback. As a result, shares climbed over 8% on the news and were able to hold onto those gains. The stock closed at $79.16 which was good for a weekly gain of 9.1%.

MARKET STATS

The Nasdaq 100 lost ground for the third consecutive week, while the Dow and S&P 500 dropped for the second straight week. We also broke a streak of 16 straight Mondays with gains in the S&P 500.

October will be the third straight losing month for the indexes with the small cap Russell 2000 continuing to suffer the most. It is down -8.3% for the month and now -7.1% for the year. The Dow is also now down for the year while the S&P 500 manages to hold onto gains thanks in part due to the strength of its top seven holdings.

Fun Fact - If the market is going to start to rally then now is the time - historically at least. Thanks to Carson Group’s Ryan Detrick for sharing this chart.

We know seasonal trends favor a rise in the fourth quarter, but I never knew there was an exact date for the bottom until now. In an average year for stocks going back to 1950, the day of the bottom has been October 27th. Why? Who knows, but it makes it our fun fact of the week.

SECTOR WATCH

Another ugly week on Wall Street as only one of the primary 11 select sector ETF’s managed to rally. That sector - Utilities (XLU). The XLU continued its snap back rally from historically oversold conditions and managed to gain 1.3%.

It was the loser board that grabbed everyone’s attention. Energy (XLE) dropped -6.2% as oil remained volatile and closed lower on the week. Also mixed earnings from ExxonMobil (XOM) and Chevron (CVX) caused the two largest stocks within the ETF to take the index lower.

Communications (XLC) was also a big loser despite gains in AT&T (T) and Verizon (VZ) after their earnings releases. Those bright spots were overshadowed by losses in Meta Platforms (META) and Alphabet (GOOGL), which alone make up 46% of the ETF. As a result of the impact of their weightings, the XLC lost -5.1%.

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